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 cost exceeds the marginal private cost.
B) The current output level is inefficiently high.
C) A per-shot tax could turn an inefficient situation into an efficient one.
D) At the current output level, the marginal social benefit exceeds the marginal private benefit.

Question

Dan Lorenz Mangubat · Accepted Answer

Final Answer : D, Explanation :  Flu shots provide a positive externality by reducing the spread of the flu to others, thus the marginal social benefit of vaccinations is higher than the marginal private benefit. This means that without government intervention, the market would produce fewer vaccinations than is socially optimal.

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