Which of the following best explains why a college education creates positive externalities?

• A. It leads to higher private costs for students, reducing overall demand for education.
• B. It benefits not only the individual receiving the education but also society through higher productivity and civic engagement.
• C. It results in negative spillover effects such as increased competition in the job market.
• D. It only increases the private earnings of graduates without affecting society.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of externalities in microeconomics. Externalities occur when a decision causes costs or benefits to third parties who are not directly involved in the transaction.
2. Step 2: Differentiate between positive and negative externalities. Positive externalities provide benefits to others beyond the individual making the decision, while negative externalities impose costs on others.
3. Step 3: Analyze how a college education can create positive externalities. Consider how education not only improves the individual's skills and earnings but also benefits society through increased productivity, innovation, and civic participation.
4. Step 4: Evaluate the given options by identifying which one reflects the idea that education benefits both the individual and society, thus creating positive externalities.
5. Step 5: Conclude that the correct explanation is the one stating that education benefits not only the individual but also society through higher productivity and civic engagement, which aligns with the definition of positive externalities.