2. Positive externalities. Consider the market for vaccines for an infectious disease. Suppose the market supply curve f

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2 Positive Externalities Consider The Market For Vaccines For An Infectious Disease Suppose The Market Supply Curve F 1 (115.81 KiB) Viewed 31 times

2. Positive externalities. Consider the market for vaccines for an infectious disease. Suppose the market supply curve for vaccines is given by the equation P = 10 + Q, and the market demand for vaccines is given by P = 400 - 4Q. In addition, each vaccine purchased provides an external benefit to society of $40. a. Explain how an externality is involved. i. b. Plot the marginal private cost, the marginal private benefit, and the marginal social benefit curves. c. What allocation obtains in the market? d. What is the socially optimal allocation? e. Suppose every individual getting vaccinated receives a rebate from the government of $20. Draw the corresponding diagram and indicate the quantity of vaccines that would be bought and sold. You don't need to solve for the actual number here; just show it on the figure. Compare this outcome to the allocations in parts (c) and (d), commenting in particular on efficiency. [Hint: The rebate is a subsidy. It will increase consumers' marginal willingness- to-pay for the vaccine by $20. You can model this by increasing demand. I want you to show the quantity that would be traded after the rebate is imposed, and tell me: Is this the efficient quantity? Is it more or less efficient than the quantity in part (c)? Is it more or less efficient than the quantity in part (d)?]