ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Let's consider the market for spaces in medical schools (for doctors, say). Suppose the demand for space is given by \( Q_D = 120 - 0.5P \) where \( P \) is the price of attending medical school (in thousands of dollars). Also, suppose the supply is given by \( Q_S = 0.5P \).

The equilibrium price in this market is [Blank].

The equilibrium quantity of spaces provided is [Blank].

Going to medical school provides a private benefit to the person attending (the future doctor). But, it also benefits the public in that there are more doctors available to provide healthcare. Therefore, this is a market with [Blank] externalities.

Suppose that the additional benefit to society from each space in medical school is 60,000 dollars. In this case, the efficient quantity of spaces (that which would most benefit society) is [Blank].

The government could achieve the socially efficient outcome by [Blank] the schools that provide spaces an amount of [Blank] dollars per space.
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Transcribed Image Text:Let's consider the market for spaces in medical schools (for doctors, say). Suppose the demand for space is given by \( Q_D = 120 - 0.5P \) where \( P \) is the price of attending medical school (in thousands of dollars). Also, suppose the supply is given by \( Q_S = 0.5P \). The equilibrium price in this market is [Blank]. The equilibrium quantity of spaces provided is [Blank]. Going to medical school provides a private benefit to the person attending (the future doctor). But, it also benefits the public in that there are more doctors available to provide healthcare. Therefore, this is a market with [Blank] externalities. Suppose that the additional benefit to society from each space in medical school is 60,000 dollars. In this case, the efficient quantity of spaces (that which would most benefit society) is [Blank]. The government could achieve the socially efficient outcome by [Blank] the schools that provide spaces an amount of [Blank] dollars per space.
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