Tom and Jason are university students. Both of them will probably get married later and have two or three children. Each knows that if he studies more in university he'll get a better job and earn more. Earning more means the ability to spend more on things for future kidsthings like computer games, braces, nice clothes, admission to a private school, and travel. Tom thinks about the potential benefits to his potential children when he decides how much studying to do. Jason doesn't.

a)What type of externality arises from studying? [5 marks]

b)Draw a graph showing this externality, contrasting the responses of Tom and Jason. Who studies more? Who acts more efficiently? Why? [15 marks]