Final answer:
Governments use subsidies like vouchers to correct market failures and achieve the social optimum level of output for public goods such as vaccinations and education. Subsidies align the market price with the social value of these goods, making them accessible at levels that benefit society.
Step-by-step explanation:
To address market failure and reach the social optimum level of output, governments can employ subsidies such as vouchers to encourage desired behaviors, such as getting vaccinated. A subsidy functions as additional "income" allowing consumers to purchase certain goods or services, in this case, flu shots. If the subsidy amount matches the per-unit spillover benefits, it can bring the market equilibrium to a socially optimal quantity of Qsocial and a price of Psocial where Marginal Social Benefit (MSB) equals Marginal Social Cost (MSC). Consequently, suppliers get compensated at Psocial per vaccination, while consumers use their voucher and pay a lower price of Psubsidy, ensuring the vaccine is more accessible and consumed at a level that is beneficial to society as a whole.
Another way governments can use subsidies is to lower the cost of education to consumers, whereby the government covers the difference between what suppliers receive and what consumers pay. For example, in subsidizing education costs in Peru, the government would aim to cover the externality gap, ensuring that families consume the socially optimal level of education by paying a subsidized price that reflects the external benefits of education.