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Chapter 5: Q 20 (page 122)

Based on your answer to Question 5-19, if the government aims to correct the positive externality in the inoculation market via a per-unit subsidy to consumers, in the wake of the study, is the appropriate per-unit subsidy higher or lower than before?

Short Answer

Expert verified

The per-unit subsidy is higher than before.

Step by step solution

01

Step 1. Given Information.

The graph for influenza is,

02

Step 2. Per-unit subsidy

The per-unit subsidy is higher than before because the government aims to inoculate positive externality and to do that the per-unit subsidy should be greater as that would attract the consumers of taking vaccines.

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Most popular questions from this chapter

Scans of internal organs using magnetic resonance imaging (MRI) devices are often covered by subsidized health insurance programs such as Medicare. Consider the following table illustrating hypothetical quantities of individual MRI testing procedures demanded and supplied at various prices, and then answer the questions that follow.

Price	Quantity Demanded	Quantity Supplied
\(100	100,000	40,000
\)300	90,000	60,000
\(500	80,000	80,000
\)700	70,000	100,000
\(900	60,000	120,000

(a) In the absence of a government-subsidized health plan, what is the equilibrium price of MRI tests? What is the amount of society’s total spending on MRI tests?

(b) Suppose that the government establishes a health plan guaranteeing that all qualified participants can purchase MRI tests at an effective price (that is, out-of-pocket cost) to the individual of \)100 per test. How many MRI tests will people consume?

(c) What is the per-unit price that induces producers to provide the amount of MRI tests demanded at the government-guaranteed price of $100? What is society’s total spending on MRI tests?

(d) Under the government’s coverage of MRI tests, what is the per-unit subsidy it provides? What is the total subsidy that the government pays to support MRI testing at its guaranteed price?

Describe political functions of government that entail its involvement in economy.

Suppose that, as part of an expansion of its State Care health system, a state government decides to offer a \(50 subsidy to all people who, according to their physicians, should have their own blood pressure monitoring devices. Prior to this governmental decision, the market-clearing price of blood pressure monitors in this state was \)50, and the equilibrium quantity purchased was 20,000 per year.

(a) After the government expands its State Care plan, people in this state desire to purchase 40,000 devices each year. Manufacturers of blood pressure monitors are willing to provide 40,000 devices at a price of $60 per device. What out-of-pocket price does each consumer pay for a blood pressure monitor?

(b) What is the dollar amount of the increase in total expenditures on blood pressure monitors in this state following the expansion of the State Care program?

(c) Following the expansion of the State Care program, what percentage of total expenditures on blood pressure monitors are paid by the government? What percentage of total expenditures is paid by consumers of these devices?

A nation’s government has determined that mass transit, such as bus lines, helps alleviate traffic congestion, thereby benefiting both individual auto commuters and companies that desire to move products and factors of production speedily along streets and highways. Nevertheless, even though several private bus lines are in service, the country’s commuters are failing to take the social benefits of the use of mass transit into account.

(a) Discuss, in the context of demand-supply analysis, the essential implications of commuters’ failure to take into account the social benefits associated with bus ridership.

(b) Explain a government policy that might be effective in achieving the socially efficient use of bus services.

After a government implements a voucher program, granting funds that families can spend at schools of their choice, numerous students in public schools switch to private schools. Parents’ and students’ valuations of the services provided at both private and public schools adjust to equality with

the true market price of educational services. Is anyone likely to lose out nonetheless? If so, who?

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