Question 3: The figure below shows the market for polio vaccination in Africa Po

Question

Question 3: The figure below shows the market for polio vaccination in Africa Polio vaccination confers an external benefit because one person's vaccination makes it less likely that other people will catch polio. a) If the market is competitive and left unregulated, how many doses of vaccine will be administered? What is the cost of unregulated vaccine administration? b) If the Melinda and Bill Gates Foundation underwrites the cost of the vaccine by paying for a large fraction of the preparation and delivery cost, what will happen to the number of doses administered Free and ccat (dellr per contract 1004 60 56 40 20 0 040 60 00100 Quanity thly contracts?

Explanation / Answer

a) In the competitive market and an unregulated one . The equilibrium will be at the point where private marginal benefit cuts MC. This is at level (P,Q) =(60, 40). Cost of unregulated vaccine will be 60*40 = $2400.

b) The interference from Bill and Melinda Gates foundation will reduce the costs of vaccine to supplier. Thus, the supply curve will shift towards right thus number of doses will increase and price will decrease as well.

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