Question:Question 2Consider the market for flu shots. Suppose that the private marginal cost (PMC) is given by P M C = 60 + 3Q. Suppose that the private marginal cost is given by PMB = 150 6Q. However, each unit of flu-shot provides society an additional constant benefit of $30.1. What type of externality is present in this problem?2. What is the market equilibrium quantity?3. What is the socially efficient quantity?4. In a diagram, graphically show where the deadweight loss is. Compute the deadweight-loss.5. Suppose government wants to use a price-based approach. What will it do to remedy the externality?Question 3Now, suppose that instead of a constant 30 per unit social benefit, we have the additional benefit to be 30 + 5Q.What does the social marginal benefit (SMB) curve look like now compared to that in Question 2?What is the market equilibrium quantity?What is the socially efficient quantity? Compare the socially efficient quantity with the case when the additional benefit was simply a constant of 30. Why did it change?In a diagram, graphically show where the deadweight loss is. You do not need to be precise in drawing but at least show how the SMB is different from the PMB (Hint: It’s no longer parallel). Compute the dead-weight loss using integration.Suppose government wants to use a price-based approach. What will it do to remedy the externality? Be precise with the amounts.
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