The Figure Shows the Supply Curve (S) and the Demand

question 368

Multiple Choice

The figure shows the supply curve (S) and the demand curve (D) for college education. The external benefit from college education is $6,000 per student per year and is constant.
-In the figure above, if the government provides a subsidy to colleges of $6,000 per student per year, how many students will be accepted?

• A) 8 million per year
• B) 12 million per year
• C) 10 million per year
• D) 16 million per year

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Definitions:

Average Product

The output per unit of input, calculated by dividing total output by the quantity of inputs used.

Production Possibilities

Different combinations of goods and services that an economy can produce efficiently with its available resources and technology.

Diminishing Returns

The principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other variables remain constant.

Marginal Product

The increase in output resulting from a one-unit increase in the input of a production factor, holding all other inputs constant.