Question

if there is a linear demand curve for services, and at $50 per visit there would be 20,000 annual visits. If a politician proposes making service price free (0 price). The number of visits would rise to 55,000.
A.How much social welfare loss from moral hazard would occur
B. How much tax money must be raised to finance services if visits were made completely free?

Answer 1

A. P1(Q2-Q1)

50(55000-20000)

=50(35000)

1.75 million dollars

B. 50(50,000)

= 2.5 million dollars