Skip to content

CA Foundation · Business Economics · Public Finance

A person gets vaccinated against a contagious disease, which also lowers the infection risk for others around. Without government intervention, the market quantity of vaccination is likely to be:

The market quantity will be less than the socially optimal quantity. Vaccination gives external benefits to others, so social benefit exceeds private benefit, and individuals, who weigh only their own benefit, under-consume. A subsidy can raise consumption to the efficient level.

  1. AEqual to the socially optimal quantity
  2. BGreater than the socially optimal quantity because private cost is below social cost
  3. CLess than the socially optimal quantity because social benefit exceeds private benefitCorrect
  4. DZero because vaccination is a non-rival good

Explanation

Vaccination creates a positive externality, so social marginal benefit exceeds private marginal benefit. Individuals consider only private benefit, so they under-consume relative to the social optimum. A subsidy can correct this.

Did you get it right without looking?

One question tells you little. A timed set on Public Finance shows your real accuracy, how long you take and where you lose marks.

Practise Public FinanceFree diagnostic mock

More Public Finance questions