In Africa, the continent where the polio epidemic has been most difficult to control, international relief efforts aimed at disease eradication often work against a backdrop of civil unrest and war. In some countries, temporary cease-fire agreements must be negotiated to allow vaccination and prevent serious outbreaks from occurring. During peacetime and during war, low incomes make paying for the vaccine a real problem among the poor. To make the oral polio vaccine more affordable, either consumer purchases (demand) or production (supply) can be subsidized. Consider the following market demand and market supply curves for a generic oral polio vaccine:
QD = 24,000 - 1,600P (Market Demand)
QS = -2,000 + 1,000P (Market Supply)
Where Q is output measured in doses of oral vaccine (in thousands), and P is the market price in dollars.
A. Vouchers have a demand-increasing effect. Graph and calculate the equilibrium price/output solution before and after the institution of a voucher system whereby consumers can use a $3.25 voucher to supplement cash payments.
B. Per-unit producer subsidies have a marginal cost-decreasing effect. Show and calculate the equilibrium price/output solution after the institution of a $3.25 per unit subsidy for providers of the oral polio vaccine. Discuss any differences between answers to parts A and B.