Suppose that we exist in a market with demand given by: Qᵖᴰ = 100-p
And the private supply curve given by: Qᵖˢ = 4 + 2p
1. What is the market price (p*) and market quantity (Q*) in the privately- provided market?
Now suppose that this good creates a positive externality, and in fact, society would prefer, for any given price, for 6 more units to be purchased than private individuals want to purchase (i.e. demand). Given this:
2. What is the social demand curve?
3. Is the private market underproducing or overproducing the good relative to the social optimum? By how much?
