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Figure: Softella
-(Figure: Softella) Refer to the figure. The figure shows a market for medicated tissues. Assume that the only use for these tissues is to wipe and clean one's hands, thus preventing germs from spreading to other people. If the government were to subsidize the users of these tissues, what would be the efficient quantity in this market?
A) 700
B) 500
C) 1,200
D) 200

Question

Use the following to answer questions:
Figure: Softella 
-(Figure: Softella) Refer to the figure. The figure shows a market for medicated tissues. Assume that the only use for these tissues is to wipe and clean one's hands, thus preventing germs from spreading to other people. If the government were to subsidize the users of these tissues, what would be the efficient quantity in this market?
A) 700 
B) 500 
C) 1,200 
D) 200

Quizplus · Accepted Answer

The efficient quantity is the quantity where the marginal benefit equals the marginal cost. In this case, the marginal benefit is the value of the tissues in preventing germs from spreading, and the marginal cost is the cost of producing the tissues. The government subsidy would reduce the cost of the tissues to consumers, which would increase the quantity demanded. The efficient quantity would be the quantity where the new marginal benefit equals the new marginal cost, which is 700 units.

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