Malaria is spread by mosquitoes. That is, a mosquito spreads malaria by biting an infected person and later infusing malaria into a different person. A study by Jeffrey Sachs et al shows a strong correlation between the incidence of malaria in a country and poverty. While malaria is known to exist in poor countries, it has also been found that the incidence of malaria exacerbates poverty. One of the simplest and effective ways of preventing the occurrence of malaria is by using Insecticide Treated Nets (ITNs).
a. Consider the private market for ITNs. Use supply and demand curves to show the equilibrium level of nets that will be produced. Is this outcome socially efficient?
b. In the graph, how would you account for the ITNs’ effect on poverty? What happens to the level of output in the market?
c. How could the government encourage the production of the efficient number of ITNs?