In the following diagram D$_1$ shows the market demand for smoke alarms when consumers have imperfect information about the benefits of installing a smoke alarm. If consumers had full information, thearket demand for smoke alarms would be D$_2$.
Which one of the following policies is most likely to ensure that consumption and production of smoke alarms are at the social optimum level?
1 )
A maximum price set at P$_0$
2 )
A maximum price set at P$_2$
3 )
A subsidy per unit equal to P$_1$ – P$_0$
A subsidy per unit equal to P$_2$ – P$_0$
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