Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?
A)At the current output level, the marginal social benefit exceeds the marginal private benefit.
B)The current output level is inefficiently low.
C)A per-shot subsidy could turn an inefficient situation into an efficient one.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

Vaccinations provide a positive externality, meaning the social benefit is greater than the private benefit. This leads to underproduction in a competitive market, making the output level inefficiently low. A subsidy can help align private incentives with social benefits, correcting the inefficiency.

Flu Shots Provide a Positive Externality