Figure 5-12 College Education Benefits Society by Producing a More Employable Workforce

Multiple Choice

Figure 5-12

College education benefits society by producing a more employable workforce, reducing crime, and creating a better informed citizenry. Thus, the marginal social benefits of college education exceed the marginal private benefits for any level of college education. This is illustrated in Figure 5-12.
-Refer to Figure 5-12.One way to obtain the economically efficient amount of college education is for governments to subsidize college education.What is the size of the per-student Pigovian subsidy that the government must provide to internalize the external benefits? (Note that the subsidy can be granted to the education institutions or to the students directly or indirectly; for example, through low-interest student loans.)

A) P₂-P₀
B) P₂-P₁
C) P₀-P₁
D) P₁