A recent public health study indicates that the benefits of flu shots extend bey
ID: 1205555 • 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.
What is the total dollar cost of the subsidy program that must be given to the consumers? $Explanation / Answer
at MSB equilibrium Benefit = 9 and output = 1000 while at MB equilibrium benefit=5 so (9-5=4) so a subsidy of $4 per consumer will increase the MB benefit to MSB equilibrium benefit.
Total dollar cost of subsidy = 4*1000=$4000
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