Market for system called early warning and response

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Suppose that the US Department of Homeland Security is concerned about the prevalence of airborne biological weapons in large sporting events in the US. Begin by assuming that there is no government policy yet. Consider the market for a system called Early Warning and Response (eWAR), which detects and eliminates pathogens from heating, ventilation and air conditioning (HVAC) systems in large buildings. These systems are produced by manufacturing companies and purchased by large building owners. Suppose that the government mandated that eWARs be installed in all large buildings holding over 10,000 people. Indicate on the graph what this policy means in terms of the quantity of eWARs installed, the price of eWARs, consumer and producer surplus as well as deadweight loss. Suppose that there is a larger benefit to society of installing eWARs that perhaps building owners are not incorporating into their demand for them. What would the value of this “external” or spillover benefit have to be larger than to make the government program pass a cost benefit criterion?

Reference no: EM131242381

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