When we add the spillover benefits to the marginal private benefit of flu shots, the marginal social benefit
(MSB) of flu shots is given by DSocial. Because the MSB is greater than MPB, we see that the socially optimal level
of flu shots is greater than the market quantity (QSocial exceeds QMarket) and the corresponding price of flu
shots, if the market were to produce QSocial, would be at PSocial. Unfortunately, the marketplace does not
recognize the positive externality and flu shots will go under-produced and under-consumed.

How can government try to move the market level of output closer to the socially desirable level of output? One

policy would be to provide a subsidy, like a voucher, to any citizen who wishes to get vaccinated. This voucher
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