The demand for injections to immunize agaisnt a disease is: P=13-0.0005Q and the Marginal Social Benefit function is given P=13-.00025Q, Where P=Price in $ and Q=quantity measured as number of shots per month. The marginal cost of injections is a constant $8.
a. With a competitve market, what quantity would be consumed assuming there's no govt intervention? What is the total welfare in this case?
b. If the social planner instead of private firms and consumers were in charge, what quantity would be consumed?
The demand for injections to immunize agaisnt a disease is: P=13-0.0005Q and the Marginal Social Benefit function is given P=13-.00025Q, Where P=Price in $ and Q=quantity measured as number of shots per month. The marginal cost of injections is a constant $8.
a. With a competitve market, what quantity would be consumed assuming there's no govt intervention? What is the total welfare in this case?
b. If the social planner instead of private firms and consumers were in charge, what quantity would be consumed?
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1. Second-hand smoke. Assume that the daily demand for packs of cigarettes in the tobacco-addicted nation of Pcoria is as follows:
Q = 100 â P
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Further assume that the marginal cost of producing a pack of cigarettes is $5, and that the market for cigarettes is perfectly competitive. Assume that each pack of cigarettes smoked does $6 worth of health damage to the smoker in the form of increased cancer risk and a total of $5 worth of health damage to the smokerâs neighbors via second-hand smoke. Finally, assume that all Pcorian cigarette consumers are aware of these costs.
(d) Draw the private supply curve and the private demand curve in this market. What is the privately efficient quantity of packs purchased per day?
(e) Draw the public supply curve in this market. Explain why it differs from the private supply curve, and how this represents the externality from second-hand smoke. Highlight the area(s) of your diagram that represent social loss, and interpret this loss in terms of cigarette smoking.
(f) What is the socially efficient quantity of packs purchased per day?
(g) Suppose the government decides to pursue a Pigouvian solution to eliminate social loss. What sort of tax or subsidy would they implement, and what is the resulting quantity of cigarette packs purchased?
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