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?
What will be an ideal response?
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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