Chapter 4 problems:
1: 1. in Figure 4.2, by how much is the market (a) Overproducing private goods? V is overproducing W because the market mix is higher than the optimal mix.
(b) Underproducing public goods? R is underproducing S because the S is in the optimal production possibility and the R is in the market mix production possibility.
3: 3. Assume that the product depicted below generates external costs in consumption of $3 per unit.
(a) What is the market price (market value) of the product?
(b) Draw the social demand curve.
(c) What is the socially optimal output?
(d) By how much does the market overproduce this good?
4: (a) Draw the market demand curve, social demand curve, and the supply curve for flu shots. (b)
Based on your graph, does society want more or less people to get a flu shot?