The local government has decided that because children's health has large external benefits, it will offer a subsidy to help families pay for visits to the pediatrician.However, the government isn't sure at what level to set the subsidy. The figure below shows the current demand curve for pediatricians' visits (D₁), and three alternativesubsidies, represented by curves D2, D3. and D4-Price (S)240220-200-180-160-140-120-80-60-40-20-0Quantity of pediatrician visitsD₂resetD₂D₂50 100 150 200 250 300 350 400 450 500D₁D₂a. Assume that the correct level of subsidy is D3. Compared to the efficient outcome, graph the loss in total surplus that would result from subsidies D₂ and D4Instructions: Use the tools provided (D₂ and D4) to draw the loss in total surplus for each subsidy.b. The socially optimal level of pediatrician visits is350 visits.

A positive externality, in economics, occurs when an economic activity or transaction generates…

Answered: The local government has decided that…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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