a) Suppose a positive externality is associated with college enrollment. Assume that college instruction is in a competitive market and that the marginal cost of providing it increases with enrollment. Show how a corrective subsidy to college students the market price o1 instruction. Show the net gain in well being possible from the subsidy and amount of tax revenue required to finance its costs on your graph.
b) What criteria can he used to determine if a small-number externality exists? Why is it undesirable to compensate receptors of external damage in cases where there are few emitters and many receptors?
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