Greater consumption of flu shots benefits people who do not get flu shot themselves by preventing the spread of disease.

Illustrate the market for flu shots, labeling the demand curve, the social value curve, the supply curve, the social-cost curve, the market equilibrium level of output and the socially optimum level of output.

Now suppose the external benefit of flu shots is $10 per unit. If the government wants to use corrective subsidy on consumers to align market outcome with the socially optimum outcome, what would be the ideal size of the subsidy? What happens to market equilibrium price, quantity and the deadweight loss if government imposes $15 per unit subsidy on consumers? Explain both in words and using a diagram.