Education External

benefits

Student: Molnar Abigail Eniko

Public Economics
University of Ioannina
Professor: Stella Tsani

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Contents
Introduction.................................................................................................................................................3
Why is this important for documenting?.....................................................................................................3
Education external benefits for the market.................................................................................................3
Conclusion...................................................................................................................................................7
References...................................................................................................................................................8

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Education external benefits
Introduction
The main reason why i want to analyze this topic is because we can see that in our days many
people have better education than our parents, grandparents and grandgrandparents. But we can
see that even our generation sometimes don`t have enough education. For me, the education has
benefits because it helped me to think more rational, to do amazing things, to discover areas that
I tough that I am not good in, an artistic mind. I am sure that every single class what I graduate
from primary, gimzium, high school, university it helped me to explore further, to push my limits
in something innovative.

Which are the external benefits what education can have in the market efficiency?

Why is this important for documenting?

It is important documenting the benefits of education because it can change and modify the
priority and approaches of education policy, the public investments in education and the
politically approaches tied up with efficiency and equity: monetary, market benefits or
nonmonetary benefits. (2)

Education influence the benefits of a market by innovation, increased productivity, business

efficiency, workers, employers as a result we can see a growing in GDP per capital.

Education external benefits for the market

Education external benefits are those benefits which benefits others for example lower
crime rates, more book, more newspaper, more literature; and the society for example the future
generation, the market. Education externalities can be positive or negative ones.

“The economy and the markets it depends on work better when there is math literacy,
adaptability and understanding. “(1) Education is increasing the earnings, which exceed both the
private monetary advantages and the private benefits non-monetary consumption and market
benefits. This earning increase generates also social benefits also for example public assistance.

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The countries which are advanced think that education is important at least for a minimum level
of knowledge and as a result they impose compulsory education for free which is a positive
benefit to the market and society because more people can have higher education level.

For example: market benefit it is higher as a result of the more

education what a person can receive, more educated people tend to be
more enterprising, efficiency, as a result they bring more economical
value to community and to the market. Peoples do not think about this
benefits, as a result they gain an education which is not optimal. The
market benefit (SD) for higher education is greater than the private
benefit (D). In order to reduce the gap between P1 and P2 and increase
the output of education, the government should provide a subsidy to
reduce education costs and encourage more people to get a higher level
of education, so people will pay the same (have a subvention) and the
level of education increases and maximizes social and market benefits. This influence the labor
market because higher level educated people are more preferred, they will have higher incomes
and lower unemployment rates which is benefic for market. (4)

The result of the graph behind show that a higher private and
social level of schooling means higher returns to society and market,
where Sp is the optimal year of study is overinvestment in schooling
according at social returns(Sn) but it is underinvestment according to
wide social. The higher education a people gain the higher benefits
will have, as a people gain more level of education it will be more
specialized as well. (2)

External benefits (Market benefits)

Measured by education effect on average income. Yields are

expressed in term of higher salaries, and profits which are reflected in the GDP per capita. For
exemple higher productivity and salaries and the contribution of higher education institutions to
research, development and innovation. (5)

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 Benefits of a market incluede increased efficiency, productivity, and innovation. All of the
resources are owned by individuals in a free market and all the decision is made by them, not the
gouverning bodies . “Government grants and subsidies to producers of goods and services that
generate external benefits will reduce costs of production, and encourage more supply.”(3)

Business Efficiency ( 7 &10)

A market economy increases the efficiency of a market economy bussines. Government is

limited and increases efficiency and increased competition, and major rules are taken to protect
consumers, the environment, market participants and national security. A business tends to
increase sales in order to increase profits and reduce costs due to competition which is postive to
the market. Competition is good to find innovative solutions for the problems, for research where
you can compare different solution. As we know because of the covid the market collapsed, as a
result many bussineses closed but not all of them. Many bussineses tried to find a innovative way
and this is what some of them made via online market, by shipping method(many products was
shipped: baked foods, clothes, and so on). Many bussineses was efficient because they educated
themselves by searching in google what they should do, ask some peoples which are close to
their sectors.

Competitive market it is efficiently this was proved in “Microeconomic analysis: market

efficiency and market failure “(10)

The result when producer wants higher profits and consumers want more satisfaction are equal
prices where marginal cost equal to marginal benefits; normal profits where the production price
is the lowest.

To maintain the balance in productivity a market should make a lot statistics, to see how
the market is going if you need to produce more or less and to remain efficient. Underproduction
is when you produce less, and overproduction when you produce more, and the balance is harder
to maintain because it can depand on some factors.

Increased Productivity (7 & 8)

In a market economy, workers want to earn more to meet their needs and for a better life. It is
normal for people in every country to need money to buy goods and services, and when people

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are motivated to work, then productivity and production are higher for the economy. In a
command economy where many things are set by a central authority, the motivation is lower.
“The most productive companies will earn more than less productive ones”(3)

Job Growth shows that in every year until 2029 the rate of employment will grow and in the
market will be new jobs which will require secondary education, technical training, and technical
skills. (8)

Innovation for a Competitive Edge (7 &3)

“In a market economy, firms and individuals are encouraged to innovate to gain a
competitive edge.”(3) They try to create new products and technologies to generate higher
incomes with the main motivation for firms and people, the money. To have a wider selection for
consumers, innovation give us a variety of goods and services.

Employers (9)

Some employees do not want to accept training because of unions, so it is difficult to hire
trained professionals or lay off less trained employees. The union can negotiate with employers
that their members are better prepared, so as not to be moved to another country so better
prepared can have higher salaries in there countries.

Workers (9)

Workers try to increase their potential earnings by developing their capacity, and ability. As
they know more about a job`s partriculary function they will understand better that industry and
they became more valued for employer. Employees in order to earn more money can learn new
advanced techniques, or abilities. Workers salary usually grow with a little percentage. To start a
program of training education they need to know and think about the benefits and negativities as
well. A higher education give a higher salaries for workers or it help them to be work more
efficiently in a market, or to learn how to lead a market which shows the market efficiently.

We see that the impact what education can have in market efficiency is really important so as
a result the price of education is much lower(comparing to benefits what it gives, the education is
expensive) than the benefits what it can has in every sectors.

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Conclusion
In conclusion, education has many positive externalities and it help the market efficiency.
I can say that the market cannot be efficient without education, education split a lot of benefits
and I think the educated people will always try to find solutions for the market problems. The
education is the key for a better economy system and for all of the other things such as better
income, better population, responsible peoples, lower unemployment rates. The higher education
affects GDP per capital in a positive way, higher profits, salaries, business efficiency, increased
productivity, innovation. The education what we gain is not only to help ourselves(to have a
higher income) but it is also help the future generation, the market with our contribution to make
something new, to make a change. Education it became a necessity and many countries give free
education not to lose money but to gain new educated generations, to help the market to become
more efficient with higher incomes, more sales, and lower money spend to the process of making
the good.

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References
1. McMahon, Walter. (2010). The External Benefits of Education. International
Encyclopedia of Education. 260-271. 10.1016/B978-0-08-044894-7.01226-4. (1)…

2. Daniel Münich, George Psacharopoulos, February 2018, “European Expert Network

on Economics of Education (EENEE)”.

3. https://www.economicsonline.co.uk/Market_failures/Positive_externalities.html

4. https://energyeducation.ca/encyclopedia/Positive_externality (First graphy and the

main ideas is from here)

5. Johnes, G., & Johnes, J. (Eds.). (2007). International handbook on the economics of
education. Edward Elgar Publishing

7.investopedia.com/ask/answers/033015/what-are-some-advantages-market-economy-
over-other-types-economies.asp (3)

8. https://www.thebalance.com/u-s-productivity-what-is-it-how-to-calculate-it-3306227

9.https://www.investopedia.com/articles/economics/09/education-training-advantages.asp

10. cengage.com/resource_uploads/downloads/0324291558_55862.pdf

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