1. The cost of a coronavirus test, if administered by the private sector, seems to be...
1. The cost of a coronavirus test, if administered by the private sector, seems to be around $50 in the US. This is going to discourage a lot of people from taking the test. But every person that avoids the test can cause further infections. The contagiousness of the virus means that if you get yourself tested, you create positive externalities.
Suppose that the supply curve is perfectly elastic (flat) at $50 per test.
The private demand curve is
q = 200 – P (where the measurement is in millions of people)
But every test brings $20 of external benefit!
a. If there is no government intervention, how many people will get the test done?
b. Taking the external benefit into account, how many people should get tested?
c. The government subsidizes the test takers at a rate of $20 per person. How many people will now get tested?
d. How much consumer surplus is created through this subsidy. Compare this to the cost of the subsidy. Is the subsidy a good idea?
Homework Answers
The cost of the subsidy is higher than the rise in the surplus. Thus subsidy creates a social loss. The subsidy is not a good idea.
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1. The cost of a coronavirus test, if administered by the
private sector, seems to be...
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B.)Is this free-market outcome optimal? Why (not)?
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Problem 1: Externalities (20 points) Figure 1 shows the marginal private benefit from college education at...
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Figure 1 shows the marginal private benefit from college education at an imaginary college. The marginal...
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4. The marginal cost of educating a college student is $5,000 per year. The table below shows the private marginal benefit from a college education. The marginal external benefit of a college education is $2,000 per student per year. [Use a graph to help you answer the questions Students Private Private Marginal Benefit External Social Marginal Benefit (millions per year) Marginal (Sper student per year) Marginal Benefit S per student per year) Cost...
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shown below for Parry County, Alabama. Answer based on the graph
provided.
A.)How many people with get the test if it is not subsidized
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B.)Is this free-market outcome optimal? Why (not)?
C.)How many people will get the test if the government makes it
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D.)How many people will get the test if they get paid $20? How
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1. With all the deaths happening in Italy, China, and all around the world, what do you think the impact will be upon international business? Will it stop? Will it slow down? 2. Secondly, as students of international business I have to assume that you are interested in doing business abroad....
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