| Inoculations create external benefits by reducing other people’s exposure to communicable diseases. Suppose the market demand curve for inoculations is 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 MEB = 8 + 1.5Q. Find the socially efficient level of inoculations, the competitive equilibrium, the deadweight loss created by the externality, and the optimal Pigouvian subsidy. Draw a figure to illustrate your answer. |
