Final answer:
At the market equilibrium level in a perfectly competitive market with positive externalities and no government intervention, education will be underproduced. Government intervention through subsidies can correct this market failure and help achieve the socially optimal level of education.
Step-by-step explanation:
If a positive externality exists in the provision of education when education is provided in a perfectly competitive market without government intervention, then at the market equilibrium level of education, education will be underproduced. In cases where the market equilibrium is inefficient, we encounter what are referred to as market failures. Positive externalities, such as those provided by education, are benefits that are not fully captured by the market price, leading to a quantity of education that is less than the socially optimal level. To counteract this underproduction, the government can intervene through policies such as subsidies to encourage the attainment of the socially optimal level of education that accounts for both private and societal benefits.
To highlight a specific policy, subsidizing education, if executed correctly with the government knowing the size of the externality and setting the subsidy accordingly, can lead to achieving the socially optimal level of education. For example, if the market cost (MPC = MSC) is 2,285 sol and the value of the externality is 952 sol, the subsidized price would become 1,333 sol for consumers, allowing the market to reach the socially optimal outcome.