Based on your answer to Problem 5-19, if the government aims to correct the positive externality in the inoculation market via a per-unit subsidy to consumers, in the wake of the study, is the appropriate per-unit subsidy higher or lower than before?

Problem 5-19

Consider panel

(b) of Figure 5-1. Assume that a careful study of the likely transmission of influ- enza in light of a changed population distribution has revealed that the external benefits from inocu- lations are greater than currently displayed in the graph. In light of this information, is the underal- location of resources to the provision of flu-vaccine inoculations larger or smaller than indicated in panel (b)?

Figure 5-1 (b)

Transcribed Image Text:

Price of Inoculation ($) 45 40 0 1 E Panel (b) E D S 150 200 Quantity of Inoculations per Year (millions) D