Inoculations create external benefits by reducing other people's exposure to communicable diseases. Assume the market demand curve for inoculations is Qd = 100 - 10P. Assume that the market for inoculations is completely competitive and that the market supply curve is the Qs = 2P - 8. Finally, assume that the marginal external benefit of inoculations is MEB = 8 - 0.5Q.
1. Determine the socially efficient level of inoculations.
2. Identify the competitive equilibrium.
3. Identify the deadweight loss created by the externality.
4. How can identify the optimal subsidy.