Suppose That Flu Shots Create a Positive Externality Equal to $20

question 19

Multiple Choice

Suppose that flu shots create a positive externality equal to $20 per shot. What is the relationship between the market equilibrium output level and the efficient equilibrium output produced?

• A)​They are equal.
• B)​The market equilibrium output level is greater than the efficient equilibrium output level.
• C)​The market equilibrium output level is less than the efficient equilibrium output level.
• D)​None of the above.

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Definitions:

Demand Shift

A change in the quantity of a product or service that consumers are willing and able to buy, due to factors such as price, consumer preferences, or income changes.

Equilibrium Price

the price at which the quantity of goods supplied equals the quantity of goods demanded, reaching a state of market balance.

Demand Increase

A situation where the desire and willingness to purchase a good or service grows, often resulting in higher prices.

Supply Decrease

A reduction in the quantity of a product or service that is available for sale.