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Consider a well-functioning market for prosthetic hips, that is characterized by the following demand and supply curves: Demand curve: P = 100- 2Q Supply curve:
Consider a well-functioning market for prosthetic hips, that is characterized by the following demand and supply curves: Demand curve: P = 100- 2Q Supply curve: P = 3Q (a) What is the marginal private benefit of the 5" unit? (2 points) (b) What assumption was necessary for you to answer (a) (in addition to the assumptions necessary to have a well-functioning market)? Explain. (2 points) (c) What is the total social benefit in equilibrium? (2 points) (d) What is the net (total) social benefit in equilibrium? (2 points) (e) Suppose that one of the by-products from the production of prosthetic hips is a highly hazardous substance that can cause environmental damage when disposed of. How does this affect your answer in (d)? Illustrate using a graph (no need for numbers). (2 points)
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