16. Flu shots provide a positive externality. Suppose that the market for vaccin

Question

16. 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. bThe current output level is inefficiently low c. A per-shot subsidy could turn an inefficient situation into an cfficient onc d. All of the above are correct. 17-18 ant Private Value Private Cost External Cost 24 30 38 6 34 36 39 17. Take into account private and external costs and assume the quantity of output is always a whole number (that is, fractional units of output are not possible). The maximum total surplus that can be achieved in this market is a. $29 b. $35 c. $40 d. $46 18. Taking into account private and external costs, total surplus in the market equilibrium amounts to a. $28 b. S39. c. $45. d. $51

Explanation / Answer

16. Option d.

Explanation: Since flu-shot has positive externality, the market equilirbium quantity will be less than the socially optimal quantity. So, the current market production is efficient. The government will have to provide subsidy to increase flu-shots. The subsidy should be given to the point that marginal social cost equals marginal social benefit. This will remove the inefficiency.

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