Question

by paying college students a subsidy equal to the external benefit from a college education, the government will cause students to internalize the externality. that is, the external benefit from a college education will become a

a. private benefit received by college students, and the demand curve for college educations will shift up.
b. private benefit received by college students, and the demand curve for college educations will shift down.
c. social benefit received by producers, and the supply curve for college educations will shift up.
d. social benefit received by producers, and the supply curve for college educations will shift down.

Explanation:

When the government pays a subsidy equal to the external benefit of college education to students, the external benefit is internalized. This means it becomes a private benefit for students. With an increased private - benefit, the demand for college education by students rises, causing the demand curve to shift up.

Answer:

A. private benefit received by college students, and the demand curve for college educations will shift up.