Question

The demand for flu vaccine is Qd = 1250 - 125P and the supply for flu vaccine is Qs= -150+75P. Qd is the quantity demanded in thousands of doses per year and the Qs is the quantity supplied in thousands of doses per year. Suppose the government believes the current market price of flu vaccine is too high for low income families and sets a strict legal maximum price at $5.20 per dose with severe punishment for transaction above the limit. How does this affect the market? Indicate the effect on the same graph. Are low income families better off because of the government $5.20 price limit on the cost of flu vaccine?

Show the effects of the subsidy program on a new graph. Would you support the government subsidy program for the flu vaccine or the strict price controls on the vaccine? please explain fully.

The price control program us ended but the US congress still wants to promote the use of the vaccine. A new government policy pays the vaccine producer a subsidy of $4.80 per dose. What will be the new market equilibrium price and quantity for the vaccine? what is the cost of subsidy program to the government? Find the market equilibrium in the flu vaccine market. Show the equilibrium on the graph.

Answer 1