Figure 5-10

Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease. Thus, the marginal social benefits of chicken pox vaccinations exceed the marginal private benefit for any quantity of vaccinations as illustrated in Figure 5-10.
-Refer to Figure 5-10.One way to obtain the economically efficient amount of chicken pox vaccinations is for governments to subsidize these vaccinations.What is the size of the per-vaccination Pigovian subsidy that the government must provide to internalize the external benefits?

Question

Figure 5-10
  
Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease. Thus, the marginal social benefits of chicken pox vaccinations exceed the marginal private benefit for any quantity of vaccinations as illustrated in Figure 5-10.
-Refer to Figure 5-10.One way to obtain the economically efficient amount of chicken pox vaccinations is for governments to subsidize these vaccinations.What is the size of the per-vaccination Pigovian subsidy that the government must provide to internalize the external benefits?

Quizplus · Accepted Answer

The Pigovian subsidy is equal to the difference between the marginal external benefit and the marginal external cost. In this case, the marginal external benefit is PE and the marginal external cost is PG. Therefore, the Pigovian subsidy is (PE - PG).

Figure 5-10 Chicken Pox Vaccinations for Toddlers Benefit Society by Protecting Young