2. In the last few days, the news media has been full of stories about this year's flu season and the shortage of flu vaccine. But suppose this were a normal year and there were more than enough doses of vaccine to give to everyone who wanted one. (15 points) (a) Suppose there were no medical insurance, and suppose that flu vaccine is produced by a competitive producers, so the cost of getting vaccinated is equal to the marginal cost of producing one more dose of vaccine (say, $10). Assume there are some people who are allergic to the vaccine and therefore cannot be vaccinated. What feature of this particular market would lead you to expect that the outcome produced by the free market will not be socially efficient? (Hint: The answer I am looking for is related to the fact that if catch the flu, I might give it to someone else). What kind of public policy response does standard economic theory suggest to this kind of problem? Can this logic explain why some private institutions give free flu shots to their employees? (b) Children who have the flu are more infectious than prime-age adults. Elderly people can die of the flu. Suppose there is a shortage of flu vaccine and it must be rationed. Use the logic and terminology of public finance theory to explain the logic of why children and the elderly should be vaccinated before prime-age adults. (You must use proper public finance terminology in your answer)