Consider the education market of a country which is perfectly competitive. The demand equation for education is given by P = 14 – 2Q and the supply equation of education is given by P = 2 + Q. (i) Assume that education is able to generate a positive external benefit of 3 per unit. Examine the education market and explain why the market is inefficient. Compute the deadweight loss and support your answers with an education market diagram. (ii) What should the government do to restore efficiency in the education market. Explain.

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