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Externalities Practice Test
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Q1
A market for education (years of schooling) creates a positive externality because more educated workers raise productivity and civic participation. Based on the externality shown in the graph, is the market outcome socially efficient?
Curves (linear):
- Demand: $D=MPB: P=90-3Q$
- Social benefit: $MSB: P=120-3Q$
- Supply: $S=MPC=MSC: P=0+3Q$
(Price/Cost on vertical axis; Quantity of years of schooling (in millions) on horizontal axis.)
A market for education (years of schooling) creates a positive externality because more educated workers raise productivity and civic participation. Based on the externality shown in the graph, is the market outcome socially efficient?
Curves (linear):
- Demand: $D=MPB: P=90-3Q$
- Social benefit: $MSB: P=120-3Q$
- Supply: $S=MPC=MSC: P=0+3Q$
(Price/Cost on vertical axis; Quantity of years of schooling (in millions) on horizontal axis.)
