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Subsidies for Positive Externalities
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A local government decides to provide subsidies for a new vaccination program aimed at improving public health. If the government successfully implements these subsidies, what is the most likely outcome in terms of market efficiency and production levels?

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Choose the Best Answer

A

The supply curve will shift to the right, leading to an increase in vaccinations and a reduction in the marginal social cost relative to private cost.

B

The demand for vaccinations will decrease as prices drop, resulting in lower production levels.

C

The subsidies will create a surplus of vaccinations, causing prices to rise again.

D

The supply curve will shift to the left, indicating less production and higher prices for vaccinations.

Understanding the Answer

Let's break down why this is correct

Answer

When the government provides subsidies for a vaccination program, it helps reduce the cost for people getting vaccinated. This means more individuals are likely to get vaccinated because it becomes more affordable, leading to higher vaccination rates. As more people get vaccinated, the overall health of the community improves, which is a positive externality; this is a benefit that affects others who are not directly involved in the vaccination process. The increased demand for vaccinations can lead to more production of vaccines, making the market more efficient as resources are used to address a public health issue. For example, if a local clinic receives government support to offer free vaccinations, they may see more patients coming in, which improves public health and makes better use of the clinic's resources.

Detailed Explanation

When the government gives money for vaccinations, it helps lower the cost. Other options are incorrect because This answer suggests that fewer people will want vaccinations when prices drop; This answer claims that subsidies will create too many vaccinations, raising prices again.

Key Concepts

Subsidies for positive externalities
Market efficiency
Supply and demand
Topic

Subsidies for Positive Externalities

Difficulty

easy level question

Cognitive Level

understand

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