A recent public health study indicates that the benefits of flu shots extend bey
ID: 1205554 • Letter: A
Question
A recent public health study indicates that the benefits of flu shots extend beyond those enjoyed by direct recipients of the shots. In particular, those who do not get flu shots will likely benefit because their chance of exposure to the flu virus will be reduced when others do get the flu shots. The health study estimates that the external benefits amount to $6 per person. The curve labeled MB shows the private marginal benefits from flu shots. The curve labeled MSB shows the marginal social benefits.
Which of the following proposals would achieve the socially efficient price and output? A. A subsidy of $4 per consumer B. A tax of $6 per flu shot provider C. A tax of $4 per flu shot provider D. A subsidy of $6 per consumerExplanation / Answer
As MSB equilibrium is at 9 while MB equilibrium is at 5 so to achieve socially efficient price and output i.e. equilibrium at MSB there shouls be a subsidy of $4 per consumer should be provided which will increase benefits from 5 to 9.
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