Use a supply and demand diagrams to show that a private health insurance market is inefficient...

Use a supply and demand diagrams to show that a private health insurance market is inefficient in the presence of positive externalities.

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Expert Solution

From the following graph, it is observed that when private health insurance has positive externality, then it has price P and quantity Q that is higher than the socially optimal equilibrium when a subsidy is given to the insurer. Then, quantity becomes Q1 that is more than Q and price becomes P1 that is less than P. It shows that efficient equilibrium is achieved with subsidy and without it, market was inefficient.

Rahul Sunny answered 1 year ago

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