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Gelneren [198K]
3 years ago
6

The privately-owned school system in Smalltown has a virtually unlimited capacity. It accepts all applicants and operates on bot

h tuition and private donations. Although every resident places value on having an educated community, the school's revenues have suffered lately due to a large decline in private donations from the elderly population. Since the benefit that each citizen receives from having an educated community is a public good, which of the following would not be correct?
a. The free-rider problem causes the private market to undersupply education to the community
b. The govemment can potentially help the market reach a socially optimal level of education.
c. A tax increase to pay for education could potentially make the community better off.
d. The private market is the best way to supply education.
Business
1 answer:
oksian1 [2.3K]3 years ago
6 0

Answer:

A

Explanation:

The privately-owned school system in Smalltown generates  positive externality to members of SmalltownA good has positive externality if the benefits to third parties not involved in production is greater than the cost. an example of an activity that generates positive externality is research and development. Due to the high cost of R & D, they are usually under-produced. Government can encourage the production of activities that generate positive externality by granting subsidies.

The free rider problem is a form of market failure. It occurs when people benefit from a good or service of communal nature and do not pay to enjoy these services.

The free rider has caused a decline in revenues and did not cause the private market to undersupply education to the community

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Description                 Debit                Credit

Cash                        $93,000

Taxes Receivable  $189,500

Accounts Payable                              $52,250

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Other revenue receivable $315,000

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To record the cash receipts.

Contracts                                  $95,250

Accounts Payable                                      $95,250

To record contracts for services.

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Credit Accounts Payable                        $963,500

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Credit Cash Account                              $1,092,500

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Less payments           1,092,500

Ending balance              $18,750

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