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 Pigouvian subsidy that the government must provide to internalize the external benefits

The remaining part of the question is given below:

(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

Correct

b. P2-P1

Explanation:

A pigouvian subsidy is a subsidy that is used to encourage behaviour that have positive effects on others who are not involved or society at large. Behaviors or actions that are a benefit to others who are not involved in the transaction are called positive externalities.

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