Figure 5-14 Figure 5-14 Shows the Market for Aviation Security. Aviation Security

Essay

Figure 5-14

Figure 5-14 shows the market for aviation security. Aviation security generates a positive externality because people who are not airline passengers benefit from aviation security.
-Refer to Figure 5-14 to answer the following questions.
a.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.
b.In the diagram, illustrate the presence of positive externalities in the aviation security market.Label any new curve that you draw.
c.On your diagram identify the economically efficient level of aviation security.Denote this level Qe.
d.Explain how a government subsidy for the airlines can bring about the economically efficient aviation security level.Be sure to identify the size of the subsidy.