Vaccinations reduce other people\'s exposure to communicable diseases. Suppose t
ID: 1196550 • Letter: V
Question
Vaccinations reduce other people's exposure to communicable diseases. Suppose the market demand for vaccinations is Q = 100-1OP where Q is millions of vaccinations and P is the price per vaccination. The market is competitive and the supply function is Q = 2P -8.What is the market equilibrium Calculate and sketch your answer. Do you think the market allocation is efficient Why or why not If not, what type of market failure is this Be as precise as you can. Suppose the marginal external benefit of vaccinations are MEB = 8 -. 15Q. What is the efficient price and quantity Calculate and sketch your answer. What is the DWL of the market allocation Calculate and Illustrate. What is the optimal Piguovian subsidy What is the incidence of the subsidyExplanation / Answer
soln :
a) Market is in equilibrium when quantity demanded = quantity supplied
100 - 10 p = 2 p -8
108 = 12p
p = $ 9
At p = $ 9 ;
quantity supplied = 2 X $ 9 - 8
Qs = 10 units
Quantity demand Qd = 100 - 10 P
Qd = 100 - 10 X 9
Qd = 10 units
The market allocation is efficient because at the equilibrium price , the quantity demanded = quantity supplied .
b) If MEB = 8 - 0.15 Q
Efficient quantity = 8 - 0.15 X 10
Efficient quantity = 6.5 units
Efficient price =( Q + 8) / 2
Efficient price = $ 7.25
C) Dead weight loss of the market allocation = 1/2 ( Q2 - Q1 ) * ( P2 - P1 )
DWL = 1/2 ( 10 - 6.5 ) X ( 9 - 7.25)
DWL = (3.5 X 1.75 ) / 2
DWL = $ 3.0625
d)
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