There is a market for polio vaccines. Demand is given by Qd=180 -4Pd, where Pd is the price of the vaccine paid by consumers and Qd is the number of vaccines consumed divided by ten million. The supply of vaccines is given by Qs=2Ps-60 with Ps and Qs being the price received by suppliers and the number of vaccines supplied divided by ten million.
1) Calculate equilibrium algebraically.
2) Define the term externality and discuss why the government may want to subsidize vaccinations.
3) Assume that the government gives consumers a subsidy for each vaccine that they consume. What happens to the demand curve? To the supply curve? Does the equilibrium quantity go up or down? Does the price that producers receive go up or down? By more or less than the amount of the subsidy?
4) Now assume that the government gives a subsidy to each producer for each vaccine that gets produced. What happens to the demand curve? To the supply curve? Does the equilibrium quantity go up or down? Does the net price that consumers pay go up or down? By more or less than the amount of the subsidy?
5) Instead, suppose that the government wants producers to make more vaccines and implements a price floor: consumers must pay at least $42 for the vaccine. Is there an equilibrium in this market? How many vaccines are produced? How many are consumed?
6) Lastly, the government wants more people to become vaccinated, so it implements a price ceiling: consumers will pay at most $36 for the vaccine. Is there an equilibrium in this market? How many vaccines are produced? How many are consumed? Who will get vaccinated?
There is a market for polio vaccines. Demand is given by Qd=180 -4Pd, where Pd is the price of the vaccine paid by consumers and Qd is the number of vaccines consumed divided by ten million. The supply of vaccines is given by Qs=2Ps-60 with Ps and Qs being the price received by suppliers and the number of vaccines supplied divided by ten million.
1) Calculate equilibrium algebraically.
2) Define the term externality and discuss why the government may want to subsidize vaccinations.
3) Assume that the government gives consumers a subsidy for each vaccine that they consume. What happens to the demand curve? To the supply curve? Does the equilibrium quantity go up or down? Does the price that producers receive go up or down? By more or less than the amount of the subsidy?
4) Now assume that the government gives a subsidy to each producer for each vaccine that gets produced. What happens to the demand curve? To the supply curve? Does the equilibrium quantity go up or down? Does the net price that consumers pay go up or down? By more or less than the amount of the subsidy?
5) Instead, suppose that the government wants producers to make more vaccines and implements a price floor: consumers must pay at least $42 for the vaccine. Is there an equilibrium in this market? How many vaccines are produced? How many are consumed?
6) Lastly, the government wants more people to become vaccinated, so it implements a price ceiling: consumers will pay at most $36 for the vaccine. Is there an equilibrium in this market? How many vaccines are produced? How many are consumed? Who will get vaccinated?
