Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $11-per-

Question

2 years ago

11

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $11-per-

shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Business

1 answer:

Ede4ka [16] · Answer 1 · 2023-06-13T01:05:51+03:00

Answer:

The answer is: the equilibrium quantity is larger than the socially optimal quantity.

Explanation:

In order for the equilibrium quantity and the socially optimal quantity to be equal, the government subsidy should have been equal to the positive externality created by the flu shots ($8). Since the government subsidy is larger, $11, then the equilibrium quantity will be higher (more flu shots supplied because of high subsidy).