5 Insecticide Treated Nets Malaria is spread by mosquitos. That is, a mosquito spreads malaria by biting an infected person and later infusing malaria into a different person. A study by Jeffrey Sachs and others shows a strong correlation be- tween the incidence of malaria in a country and poverty. Malaria is known to exist in poor countries; it has also been found that the incidence of malaria exacerbates poverty. One of the simplest and effective ways of preventing the occurrence of malaria is by having people sleep at night using1 insecticide-treated nets (ITNs): if the mosquito doesn't bite you, the mosquito dies. The market for these ITNs is characterized by the following aggregate demand and supply functions (2;; = 450 1513 Q3 = 50+ 5;!) 1. Consider the private market for ITNs. Graph the initial situation. Label the axis and identify all the relevant intercepts. 2. Compute the initial equilibrium in the market for ITNs. Call this initial situation (QMarket, PMarket). 3. When the market is left to operate freely, it reaches the equilibrium (@Market, PMarket). (a) What's the MB to the last family to buy an ITN? Evaluate the MB at QMarket (b) What's the MC of providing the last ITN purchased? Evaluate the MC at QMarket 4. The market for insecticide treated nets is one where economists believe there are positive negative uncertain externalities in the consumption production of the nets. Ex- plain. 5. In particular, studies have shown that there's an external marginal benefit generated by people who sleep under bed-nets which is given by MEB = +$8 (a) What happens when we account for the MEB? Sketch the MSB on the same plot from part 1. Make sure you label all the pieces. (b) If we took into account the externality, how many units should have been transacted, QOptimal? (c) What's the size of the DWL when we stop at QMarket? Calculate the DWL in $ and shade it in your graph. In order to sleep under a bed-net, you must purchase one first. 56. Correcting the externality. We want to attain QOptimalu (a) In order to supply Qoptiml, what's the price that the rms need to receive? Call it pg (13) In order to be willing and able to purchase QOPtimal, What's the price that consumers should pay? Call it 329 (c) To remedy this externality, the Gov should introduce a Pigouvian equal to per unit (specify the $ value of the subsidy/tax). (d) What's the total cost to the Gov of running this program? Total Cost $ _____