Question

(a) Consider an individual’s decision to attend university and receive an education. As an abstraction, assume that the individual makes a binding decision to attend college for a fixed number of years based on the costs and her perceived benefits of doing so. What are the costs and benefits that the individual should consider? (b) Assume that the individual’s demand for years of education can be quantified as Y = 10 − 2t (1) where Y is the number of years the individual chooses to attend college and t is the yearly cost (tuition and other costs) in thousands of dollars. Assume the marginal cost of education is $4,000 per year per student. Graph the individual’s decision to attend college. How many years of education will this person choose? (c) Is her choice efficient in an economic sense? Are there any aspects of education the individual ignores in her decision? (d) Suppose that the social benefits of education are described by the relation Y = 10 − t. (2) Graph this relation along with the individual’s demand relation. Why do the social benefits lie above the individual benefits from education? What is the level 1 of education (in years of college attendance) that the individual should seek if we were interested in maximizing social welfare? Is this level of education efficient from an economic point of view? Explain

Answer 1

Education is considered to be a commodity which provides huge positive externalities to society around the individual/s who decide to take upon the responsibility to educate themselves and spread the knowledge among his surroundings. Thus the social aspect of education is always greater than personal upliftment.