It has been said that well-educated citizens are necessary for democracy. Discuss this idea in economic terms. What market imperfection might occur and what are the appropriate government policies to correct it?
Education provides a beneficial externality such that the marginal social benefit (MSB) is greater than the marginal private benefit (MPB). As a result, the market acting alone is not likely to produce enough educational opportunities. The appropriate policy is to subsidize education through the democratic process.
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