Describe the argument that education generates a positive externality.

Describe the argument that education generates a positive externality. Why might this externality not be relevant in terms of economic efficiency?

What will be an ideal response?

ANSWER

Education is often said to produce a positive externality because there are positive spillovers from getting an education for which the consumer of education is not compensated. For example, we all benefit from a literate society in that it makes it easier to facilitate market transactions. This externality may not be relevant in economic efficiency terms because it may not be inframarginal. If the externality is inframarginal, an increase or decrease in education on the margin will not increase or decrease the social benefit or cost. Thus if education is inframarginal in the current range because individuals have sufficient private incentives to produce the current level, then any socially beneficial benefits from education would have already been produced.