The accompanying table shows the marginal private benefit, marginal social benefit, and marginal private cost for you to attend a local university.

a. Why does the marginal private cost of education rise as years of education rises? 

b. Why does the marginal private benefit fall as years of education rises?

c. Why do the private marginal benefits of education differ from the social marginal benefits of education?

d. What happens to the size of the positive externality associated with education as years of education increases? Why?

e. If this education market were purely private, what would be the optimal number of years of education for you to obtain?

f. What is the socially optimal number of years of education for you to obtain?

g. What are some methods that society uses to get from the private optimum level of education to the socially optimum level of education?

Transcribed Image Text:

Years of University Education 0 1 2 3 4 5 Marginal Costs (MC) 2000 3000 4000 5000 6000 7000 Private Marginal Benefits (MB) 17000 15000 13000 11000 9000 7000 Social Marginal Benefits (MB) 29000 24000 20000 17000 14000 11000