Suppose That Flu Shots Create a Positive Externality Equal to $12

question 233

Multiple Choice

Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $5 per-shot subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

• A) They are equal.
• B) The equilibrium quantity is greater than the socially optimal quantity.
• C) The equilibrium quantity is less than the socially optimal quantity.
• D) There is not enough information to answer the question.

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