Suppose that the inverse demand curve for a vaccine is p = 200 Q and private marginal cost (unregulated competitive market supply) is MC= 20 + 4Q but Government thinks that the spread of the vaccine has a marginal social benefit (cost saving) estimated in MC spread = 2Q

a. Which is the unregulated competitive equilibrium?

b. What is the social optimum? Draw a graph comparing a and b.

c. Compute the increase in consumer welfare in the equilibrium which accounts for the externality.

d What specific subsidy (per unit of output) would induce the social optimum? Draw a graph to show the equilibrium with subsidy.