Question

With fewer people getting the flu and therefore less flu going around, even some people who don't drink coffee or produce coffee will benefit from not getting sick. So, from an economics perspective, the market for Mega Beans has an impact on people who do not buy or sell the coffee.

a) True
b) False

Answer 1

The statement is indeed true as individuals who do not purchase or consume coffee can still benefit from the reduced risk of contracting the flu, which is a positive externality of others getting vaccinated. This mirrors how subsidies can be used to correct market outcomes to reflect the social benefits of a product like flu shots.

Step-by-step explanation:

The question you've asked is related to the concept of externalities in economics, particularly the impact of positive externalities on markets. A positive externality occurs when a third party not involved in a transaction benefits from that transaction. In this case, getting a flu shot creates a positive externality, as it reduces the likelihood of non-vaccinated individuals catching the flu.

In the market for flu shots, the marginal social benefit (MSB) is greater than the marginal private benefit (MPB) because of these externalities. Subsequently, the socially optimal quantity of flu shots, QSocial, is bigger than what the market would produce without considering the externality, QMarket. To achieve the socially optimal outcome and account for the positive externalities, the government can provide a subsidy to bridge the gap between MSB and MPB. This encourages more people to get vaccinated, moving the quantity closer to the socially optimal level.