The market for flu shots is given by the following inverse demand and supply equations:
P = 40 - 0.40Q
P = 0.40Q
Where P is the price per flu shot and Q measures the daily quantity of flu shots. The external marginal benefit of a flu shot is $8. The socially optimal number of daily flu shots is:
A) 60.
B) 50.
C) 140.
D) 35.

Question

Quizplus · Accepted Answer

To find the socially optimal quantity, we need to account for the external marginal benefit. The demand curve becomes P = 48 - 0.40Q (adding the $8 benefit). Setting this equal to the supply curve P = 0.40Q, we solve 48 - 0.40Q = 0.40Q, leading to Q = 60.

The Market for Flu Shots Is Given by the Following