Question

current objective
understand how subsidies can be a solution to positive externalities and illustrate this graphically
question
all of the following statements about subsidies and positive externalities are true, except:
select the correct answer below:
the government should not want the party creating the positive externality to receive a greater share of the social
benefits.
in the case of vaccines, an effective government public policy might be to provide a subsidy to those who choose
to get vaccinated.
when the government uses a subsidy to those who choose to get vaccinated, it can produces the socially optimal
quantity of vaccinations.
none of the above: all of the statements are true.

Explanation:

• For the first option:
• In the case of positive externalities, the government often wants the party creating the positive externality (e.g., a person getting vaccinated which benefits society at large) to receive a greater share of the social benefits. This is because without intervention (like a subsidy), the private benefit is less than the social benefit, and the quantity of the good/service (e.g., vaccinations) provided is less than the socially optimal quantity. So, the statement “The government should not want the party creating the positive externality to receive a greater share of the social benefits” is false.
• For the second option:
• Vaccines have a positive externality. When a person gets vaccinated, not only do they protect themselves (private benefit), but they also reduce the probability of spreading the disease to others (social benefit). Since the private benefit (to the individual getting vaccinated) is less than the social benefit, an effective government public policy might be to provide a subsidy to those who choose to get vaccinated. This is a common - sense and economically - sound approach as it encourages more people to get vaccinated.
• For the third option:
• When the government uses a subsidy for vaccinations, it can shift the private demand curve (which only considers the private benefit of vaccination) to a new demand curve that is closer to the social demand curve (which considers the social benefit). If the subsidy is set correctly (equal to the marginal external benefit at the socially optimal quantity), it can produce the socially optimal quantity of vaccinations.

Answer:

The government should not want the party creating the positive externality to receive a greater share of the social benefits.