A college education creates positive externalities. Use the accompanying graph which represents the hypothetical market for a college education in the land of Smartypants to answer the questions that follow. MSB stands for marginal social benefit, MPB stands for marginal private benefit, and MPC stands for marginal private cost.

1. Move point E to the efficient equilibrium outcome.

2. If the government of Smartypants wanted to subsidize college education, how much would it subsidize each student to achieve the socially optimal level of education?

Market for College Education 100 90 80 70 S MPC 60 Price per year ($1000s) 50 E 40 30 20 10 D D MPB MSB 0 - 0 10 20 30 40 50 60 70 80 90 100 Number of students (in thousands)