Describe the argument that education generates a positive externality. Why might this externality not be relevant in terms of economic efficiency?
What will be an ideal response?
Education is often said to produce a positive externality because there are positive spillovers from getting an education for which the consumer of education is not compensated. For example, we all benefit from a literate society in that it makes it easier to facilitate market transactions. This externality may not be relevant in economic efficiency terms because it may not be inframarginal. If the externality is inframarginal, an increase or decrease in education on the margin will not increase or decrease the social benefit or cost. Thus if education is inframarginal in the current range because individuals have sufficient private incentives to produce the current level, then any socially beneficial benefits from education would have already been produced.
You might also like to view...
Two social institutions that are essential for trade to be organized are ________
A) property rights and laws B) markets and banks C) businesses and banks D) markets and property rights
The large budget deficits of the early 1990s resulted in large current account deficits
Indicate whether the statement is true or false
Matty and Rudy are the same age, live in the same town, and hold similar jobs a similar distance from their respective homes. They are so similar, in fact, that to the insurance company, they look the same and are offered the same insurance options. However, Matty has never been a particularly good driver and so buys a lot of auto insurance. Rudy, on the other hand, takes pride in being an excellent driver and so only carries the minimum insurance required. This example illustrates the potential for :
A. risk pooling. B. risk aversion. C. adverse selection. D. diversification.
A major macroeconomic leakage from the circular flow is:
a. Consumption b. Savings c. Saving d. Gross private domestic investment e. All of the above.