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1. The demand function for hours of tutoring is (JD 2 2i] - P and the supplyr function for hours of tutoring is Q5 2 P + 2. Because students who receive tutoring become more productive members of society. the market for tutoring generates a positive externalitv. The marginal social benefit of tutoring is described by the function M58 2 23 - if).
(a) Solve for the market equilibrium and the socially efficient equilibrium.
(b) What is the producer and consumer surplus in the market equilibrium? What is the dead- weight loss?
(c) The government is considering subsidizing tutoring services? What size of subsidy would move the market to the slzlciallyr efficient equilibrium?
(d) With the above subsidyr in placer what are the new producer and consumer surpluses? What is the cost to the government to provide the subsidy? What is the deadweight loss?
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