Primary School education is often used as an example of an activity that generates positive externalities. Let's assume that in a particular country, all primary education is provided by the private sector and private demand is perfectly elastic at a price of $1000 per student. Further, assume that the marginal external benefit is constant at $100 per student. Use the additional information below to answer the following questions:
Number of students...marginal private cost 1...$100 2...$220 3...$370 4...$560 5...$780 6...$1080 7...$1500 8...$1990 9...$2600 10...$3420
a) Graphically show and state the number of students that will be educated if external benefits are not accounted for and explain.
b) Graphically show and state the number of students that should be educated in order to maximize social welfare and explain.
c) Devise a Gov't subsidy that will induce private education providers to educate the socially optimal number of students. Provide a dollar amount for the subsidy and explain.
d) Does it ever make sense to not educate some students? If the example was couched in terms of college education, would it ever make sense not to educate some students? Explain and distinguish between primary and secondary education versus post-secondary education.