The market for flu shots is given by the following inverse demand and supply equ

Question

The market for flu shots is given by the following inverse demand and supply equations:
P = 40 – 0.40Q
P = 0.40Q
where P is the price per flu shot and Q measures the daily quantity of flu shots. The external marginal benefit of a flu shot is $8. The socially optimal number of daily flu shots is: 50. 60. 35. 140. The market for flu shots is given by the following inverse demand and supply equations:
P = 40 – 0.40Q
P = 0.40Q
where P is the price per flu shot and Q measures the daily quantity of flu shots. The external marginal benefit of a flu shot is $8. The socially optimal number of daily flu shots is: 50. 60. 35. 140.

Explanation / Answer

Demand curve is given as P =40 – 0.40Q;
Supply curve is given as : P = 0.40Q

Since marginal benefit of flu shot is $8.

Hence revised demand curve including marginal benefit will be : P = 40 - 0.40Q + 8 = 48 - 0.40Q.

So at equilibrium socially optimal quantity of flu shot can be derived by:

48 - 0.40 Q = 0.40 Q

Hence 0.80 Q = 48

So Q = 48 / 0.80 = 60

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