Inoculations create external benefits by reducing other people's exposure to communicable diseases. Suppose the market demand curve
Question:
Qd = 100 - 10P.
Where Qd is millions of inoculations and P is the price per inoculation. Suppose also that the market for inoculations is competitive and that the market supply curve is
QS = 2P - 8
Finally, suppose that the marginal external benefit of inoculations is
EB = 8Q + 0.75Q2
Find the socially efficient level of inoculation, the competitive equilibrium, the deadweight loss created by the externality, and the optimal Pigouvian subsidy. Draw a figure to illustrate your answer.
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The socially efficient level of inoculations is 16 The dead...View the full answer
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