Consider two vaccines for difffferent viruses χ and Ω Assume that the marginal cost of producing both drugs is constant and that the fixed cost is small. In other words, assume that the supply curve for both drugs is flat. a Suppose that demand for vaccine χ is price elastic, whereas demand for vaccine Ω is relatively inelastic. Plot the private demand curve for both drugs on separate axes. b For the sake of example, assume that both viruses have the same externality. Plot the social demand curve for both drugs and label the social loss in each case. c Explain intuitively why, all else equal, social loss is greater in the case of elastic demand than it is in the case of inelastic demand.

Consider two vaccines for difffferent viruses χ and Ω Assume that the marginal cost of producing both drugs is constant and that the fixed cost is small. In other words, assume that the supply curve for both drugs is flat. a Suppose that demand for vaccine χ is price elastic, whereas demand for vaccine Ω is relatively inelastic. Plot the private demand curve for both drugs on separate axes. b For the sake of example, assume that both viruses have the same externality. Plot the social demand curve for both drugs and label the social loss in each case. c Explain intuitively why, all else equal, social loss is greater in the case of elastic demand than it is in the case of inelastic demand.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter8: Market Failure

Section: Chapter Questions

Problem 10P

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