Suppose that the marginal private benefit of a new vaccine could be measured as $M P B = 10 - Q$ . Suppose that the marginal social benefit could be measured as $M S B = 12 - Q$ . Suppose that the private marginal cost curve could be measured as $M P C = Q$ . If there is no subsidy in this market,

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In a free market, producers will produce where their marginal cost meets the price (in this case, the private benefit). Therefore, the market quantity will be where MPC = MPB, or Q = 10 - Q, which gives us Q = 5. However, the socially optimal quantity is where MSB = MSC, or 12 - Q = Q, which gives us Q = 6. Therefore, society will under-consume the product by 1 unit.

Suppose That the Marginal Private Benefit of a New Vaccine MPB=10−QM P B = 10 - QMPB=10−Q

Suppose That the Marginal Private Benefit of a New Vaccine $M P B = 10 - Q$