Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine. The government could increase total economic surplus by:
A)taxing production of the vaccine.
B)encouraging people to pay each other to get the vaccine.
C)subsidizing production of the vaccine.
D)providing 250 doses of the vaccine for free.

Question

Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine.  The government could increase total economic surplus by:
A)taxing production of the vaccine. 
B)encouraging people to pay each other to get the vaccine. 
C)subsidizing production of the vaccine. 
D)providing 250 doses of the vaccine for free.

Quizplus · Accepted Answer

The government can increase total economic surplus by subsidizing the production of the vaccine. This will shift the private demand curve upwards, increasing the quantity of the vaccine produced and lowering the price. As a result, more people will be willing to get vaccinated, reducing the likelihood of getting the flu and increasing the social benefit. Subsidizing production will also incentivize more firms to enter the market, further increasing competition and lowering the price. This will result in both consumer and producer surplus. Therefore, subsidizing production of the vaccine is the best choice to increase total economic surplus.

Suppose That a Vaccine Is Developed for a Highly Contagious