Suppose that the marginal private benefit of a new vaccine could be measured as Suppose that the marginal social benefit could be measured as Suppose that the private marginal cost curve could be measured as If there is no subsidy in this market,

Question

Suppose that the marginal private benefit of a new vaccine could be measured as  Suppose that the marginal social benefit could be measured as  Suppose that the private marginal cost curve could be measured as  If there is no subsidy in this market,

Quizplus · Accepted Answer

In the absence of a subsidy, the market will produce where the marginal private cost equals marginal private benefit (Qm). However, the socially optimal output level is where marginal social benefit equals marginal private cost (Qs). Since marginal social benefit is greater than marginal private benefit at Qm, society would want a higher level of output. The difference between Qm and Qs is one unit, meaning that society will under-consume the product by one unit. Therefore, the answer is D.

Suppose That the Marginal Private Benefit of a New Vaccine