3 Education 1. The market for education in Tybee, a tiny island in Chatham County, Georgia is described in the diagram below. Economists believe that education generates a positive externality via consumption. On the xaxis we have the number of students enrolled per year and on the yaxis we have the tuition price they pay per year. All numbers should be WHOLE (no decimals at all). 39 100 90 80 70 60 50 40 30 20 10 Q 10 20 30 40 50 60 70 80 90 100 (a) If the market is left to operate freely, without any Government intervention, how many people will get an education per year? QMarket = _ . Show all the steps. Then, identify this quantity in the graph. (b) If the market is left to operate freely, without any Government intervention, what price will they Charge per year? PMarket = _ . Identify this price in the graph. (c) If the market is left to operate freely, Without any Government intervention, is there any DWL? Yes No . If so, compute the size of the DWL (in absolute terms) and shade it on the diagram above. Otherwise enter $0, don't shade anything: DWL = $ _ _ _ _ . Show all your reasoning / formulas / calculations. 2. Reaching the Optimal. (a) What's the optimal number of students that should enroll per year? Qoptimal = _ _ _ . Show all the steps. Then, identify this quantity in the graph. (b) If we want QOPtimal: what's the price per student that universities will receive? 103 = _ _ _ . Identify this price in the graph. (c) If we want Qoptimal, what's the price that each student Will have to pay? my = Identify this price in the graph. (d) In order to attain Qoptimal, the current Government Will have to give a Pigouvian subsidy equal to per student enrolled. 3. Hard. Forget about the previous subsidy. Senator Bernie Sanders is not satised with the proposal of the current Government you derived earlier (whatever that $ amount was). Instead, he proposes to give a subsidy to the students equal to sBem-e = $40 per student enrolled. Economists still believe that this market exhibits a positive externality via consumption. 3. Hard. Forget about the previous subsidy. Senator Bernie Sanders is not satised with the proposal of the current Government you derived earlier (whatever that $ amount was). Instead, he proposes to give a subsidy to the students equal to sBemje = $40 per student enrolled. Economists still believe that this market exhibits a positive externality via consumption. $ 100 Q | I 10 20 30 40 50 60 70 80 90 100 (a) On the graph, draw what happens when we introduce the sBernie = $40. What curve will be affected? Choose one: I S D MSB I. (b) How many students will go to college now? . Identify this quantity in the graph. Show all your steps/ reasoning. See that if we give a subsidy, we have to shift the MB upwards by +$40. The shifted curve will intersect the supply at QBel-nje = 60. Of course, QBemie = 60 > 50 = QOptimal- (c) Will this new proposal generate any DWL? -. If so, compute the size of the DWL (in absolute terms) and shade it on your diagram (otherwise enter $0; don't shade anything): DWLBernie = $ _ _ _ _ >