Lesson 5

Question 1

Is education a public good?

Answer 1

no

public good = non-rival & non-excludable
- rival: as you teach more, quality/costs decrease, so depends
- excludable: yes. If you get in there is less space for others

Question 2

does education create externalities? Which ones?

Answer 2

yes

1. socialization (= teaching the norms, customs, ideologies of society)
   –> positive externality is because attending school is valued by society (–> more cohesive society, increase civic engagement)
   - however, education can also be seen as indoctrination
2. economic growth (comes from productivity)
   - human capital= investments in the individual to raise productivity –> lead to innovation of new technologies
   - however, is this not already accounted for in price (salary)?

conclusion: intervention more motivated in lower grades than higher ones & some subjects more than others (art: paid less, but bigger spillover)

Question 3

commodity egalitariansim

Answer 3

= all should be able to access some education (fundamental right)
reasoning: basic survival in an educated world and access to some marketable skills. for children –> protect children from parents who choose own interest of child’s one

Question 4

why do we see free and required educational at lower grade levels (public schools)?

Answer 4

1. commodity egalitarianism motivates it as a right
2. externalities must be so large that they indicate full payment
   - Individuals choose Q₁, where MPB = MPC (think about their private benefits)
   But the socially optimal quantity Q* is where MSB = MPC. (external + private benefits (way higher))

–> this difference must be subsidizes by the government

Question 5

how does a government intervention look like for private education?

Answer 5

1. straight line= budget contract with education and composite goods
2. curved line= indifference curve that represents the satisfaction for education and composite goods

Question 6

3 types of crowd out in private education with government intervention

Answer 6

1. no take-up
   - individuals want more education than government is providing
   –> continue to buy private education
   (curved line goes a bit down, but doesn’t do enough)
2. partial take-up
   - free education is close to what they were consuming
   - a little less, but still accept, because now they have more of x to consume
   –> crowd-out of private education to go to public
3. ful take-uo
   - exceeds private education
   - can consume more x as well
   - full crowd-out + also better of

Question 7

why do we care about crowd out?

Answer 7

because it shifts the cost to taxpayers instead of the ones receiving the service (no whole public pays for full education, while private was only one for the people that actually get the private education)