Private equilibrium and socially efficient equilibrium

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Suppose a town is interested in providing a public good, crime prevention, to a community. There are two people who live in this community Sam and Sara. Sam's demand curve for crime prevention is given by q(Sam)= 100-2p and Sara's demand for crime prevention is given by q(Sara)=50-p. Suppose the marginal cost of the good is given by P=40. A) What is the equilibrium price and quantity of this good without government intervention (in the private market)? B) Now solve for the socially efficient level of the public good. C) Explain briefly why there is a discrepancy between the private equilibrium and socially efficient equilibrium D) Now suppose there was positive production externality to crime prevention: MEB = 7.5. What is the socially optimal level of the good now? E) How could we induce producers to internalize the externality?

Reference no: EM131083414

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