Question
1 Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled
1 Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to "Calculate," you must show how you arrived at your final answer.
A medical vaccine is produced and sold in a perfectly competitive market. Assume that the medical vaccine generates a positive externality in consumption within the society.
(a) Draw a properly labeled graph for a competitive market providing this medical vaccine and show each of the following.
(i) The market equilibrium quantity, labeledQC
(ii) The socially optimal quantity, labeledQS
(iii) The area of the deadweight loss, shaded completely
(b) Identify one policy action that would lead to the production of the socially optimal quantity of the vaccine.
(c) Would a binding price ceiling result in the production of the socially optimal quantity of the vaccine? Explain.
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