Question

Suppose that flu shots create a positive externality equal to $12 per shot. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Answer 1

Answer:

Directly proportional until an equilibrium point

Explanation:

Positive externality is when the effect/use of a product causes benefits to the users. This relationship is directly proportional meaning if the production/usage of the product increases, the benefits increase as well up until a point where they are in equilibrium and they have reached a certain production level. After that point the benefits graph starts to decrease, so the relationship between the equilibrium quantity of the flu shots and the socially optimal quantity produced is directly proportional until it reaches the equilibrium point and after that they are inversely proportional.

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