91. Assume that price underestimates the value that society...

91. Assume that price underestimates the value that society places on COVID-19 vaccine. If firms produce where P = MC, firms will be producing a. less than the efficient amount of COVID-19 vaccine. b. the efficient amount of COVID-19 vaccine. c. more than the efficient amount of COVID-1 vaccine. d. so that consumer surplus is zero

Transcript

00:01 Assuming the marginal cost of flu vaccinations is a constant of 57 and public health researchers now calculate that each vaccine produces an average of $15 worth of external benefits due to the reduced risk of infection in the rest of the community.

00:31 Market demand, private marginal benefits equals the price for flu vaccine is described by nb is equal to 94 minus 2 .700q.

00:47 The private market equilibrium results in a deadweight loss due to under consumption of vaccines.

00:52 What is the optimal subsidy rate in decimal form to the nearest 0 .01 that a government should provide for the flu vaccines to eliminate the dead weight loss? so given the marginal cost and the private marginal benefit equation with $15 worth of external benefit, the social marginal benefits will be expressed as smb is equal to 94 plus 15 minus 2 .700q which is also equal to 109 minus 2 .700q.

01:33 So the private market equilibrium will be achieved where the marginal cost is equal to the pmb, the private marginal benefit.

01:48 So this is 57 is equal to 94 minus 2 .700q.

01:58 So 2 .700q will be equal to 94 minus 57.

02:03 Q will be equal to 37 divided by 2 .700 which is 13 .700 and price which is equal to the marginal cost is 57.

02:14 So the consumer surplus will be the area of abc which is equal to 1 over 2 multiplied by 94 minus 57 multiplied by 13 .7.

02:34 So the consumer surplus will be equal to 1 over 2 multiplied by 37 multiplied by 13 .7 which is 253 .52.

02:48 So in this case since p is equal to mc there's no producer surplus...

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