Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine. At the private market equilibrium, the deadweight loss is ______ per day.
A)$0
B)$125
C)$250
D)$500

Question

Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine.  At the private market equilibrium, the deadweight loss is ______ per day.
A)$0 
B)$125 
C)$250 
D)$500

Quizplus · Accepted Answer

The private demand curve represents the demand for the vaccine by individuals based on their own individual benefits, whereas the social demand curve takes into account the benefits to society as a whole. Since the vaccine reduces the likelihood of the flu spreading, the social benefit of the vaccine is greater than the private benefit, leading to a difference in the demand curves.

At the private market equilibrium, the quantity demanded is where the private marginal benefit (PMB) equals the private marginal cost (PMC). However, this quantity is lower than the socially optimal quantity, which is where the social marginal benefit (SMB) equals the social marginal cost (SMC).

The deadweight loss (DWL) is the loss of total surplus (consumer and producer surplus) that occurs when the market equilibrium is not the socially optimal quantity. In other words, it is the loss of potential gains from trade that is not realized due to market inefficiency.

In this case, the private market equilibrium quantity is Qp, and the socially optimal quantity is Qs. The DWL is the triangle formed by the vertical distance between Qp and Qs, and the horizontal distance between the private and social demand curves at Qp.

From the graph, we can see that the DWL is approximately $250 per day. Therefore, the answer is C.

Suppose That a Vaccine Is Developed for a Highly Contagious