If the government subsidizes vaccination against influenza to internalize the externality, should it impose the subsidy on consumers or producers of flu vaccines? How large should the subsidy be? How much less per flu vaccine would patients (i.e., consumers) pay? How much more would manufacturers (i.e., producers) of flu vaccines receive?
If the government subsidizes vaccination against influenza to internalize the externality, should it impose the subsidy on consumers or producers of flu vaccines? How large should the subsidy be? How much less per flu vaccine would patients (i.e., consumers) pay? How much more would manufacturers (i.e., producers) of flu vaccines receive?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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If the government subsidizes vaccination against influenza to internalize the externality, should it impose the subsidy on consumers or producers of flu vaccines? How large should the subsidy be? How much less per flu vaccine would patients (i.e., consumers) pay? How much more would manufacturers (i.e., producers) of flu vaccines receive?
Transcribed Image Text:**Question 2**
Flu vaccines are an example of a good with external benefits. The following graph represents the market for flu vaccines in the US. Use the graph to answer the questions below.
**Graph Explanation:**
The graph displays the relationship between the price (P) and quantity (Q) of flu vaccines, where price is on the vertical axis and quantity on the horizontal axis. The units of quantity are in millions of vaccines per year.
- **MC (Marginal Cost)**: This line represents the cost to suppliers for each additional vaccine produced.
- **Social MB (Social Marginal Benefit)**: This line shows the overall benefit to society from each additional vaccine, including both private and external benefits.
- **Private MB (Private Marginal Benefit)**: This line represents the benefit to individuals who receive the vaccine, excluding external benefits.
**Key Points on the Graph:**
- The equilibrium price where the Private MB intersects the MC is at $28, with a quantity of 160 million vaccines.
- The socially optimal quantity, where Social MB intersects with MC, is at a higher price of $35, with a quantity of 300 million vaccines.
The graph illustrates that the market quantity (160 million) underprovides the vaccines compared to the socially optimal quantity (300 million), highlighting the external benefits of flu vaccines.
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