Question

1.1 In the absence of any government intervention what is the equilibrium level of security that airlines will supply? Using the diagram, denote this level, Q*. Briefly explain why this quantity is not the economically efficient level of aviation security.

Answer 1

In this case, the equilibrium level of securities will reduce as it will move from (Print A) to (Print B). The quantity will be economically inefficient since the government covers the largest part of security measures.