Question 6 Suppose that Cow Flu (CF) spreads worldwide. The demand for the CF vaccine is Q=4-p, while the supply is Q = 2p/3. To promote vaccination, the government sets a price ceiling at p™ = 3. a) Explain what happens to market price and quantity. After CF is found to be very deadly, the vaccine demand rises to Q = 10 - p. b) Does the market clear with the price ceiling? If the price ceiling on the CF vaccine was removed, what would total market surplus be? c) Assume the government auctions off the right to buy at the price ceiling p = 3. What is the market clearing price of these rights? How much revenue do those rights generate? What is the social surplus, and deadweight loss?
