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 $M P C = Q$ . What amount of a per-unit subsidy would encourage the optimal societal consumption of the vaccine?

Question

Quizplus · Accepted Answer

The optimal societal consumption occurs where MSB = MPC. Setting $12 - Q = Q$, we find $Q = 6$. At this quantity, MPB is $10 - 6 = 4$ and MPC is $6$. The subsidy needed is the difference between MSB and MPB at this quantity, which is $12 - 10 = 2$.

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 $M P B = 10 - Q$