Final answer:
The government can provide subsidies to move the market level of output closer to the socially desirable level of output by offering vouchers for flu shots that are equal to the per-unit spillover benefits.
Step-by-step explanation:
To move the market level of output closer to the socially desirable level of output, one policy that the government can use is to provide a subsidy to individuals who wish to get vaccinated. This subsidy can take the form of a voucher that can be used to purchase only a flu shot. If the value of the voucher is equal to the per-unit spillover benefits, it can increase market equilibrium to a socially optimal quantity of vaccinations.
The government can provide a consumer subsidy equal to the marginal social benefit minus the marginal private benefit to increase flu vaccinations to the socially optimal level, correcting the market failure.
In a free market, flu shots that don't occur but should have can be understood as a scenario where there is a discrepancy between the market level of output and the socially optimal level of output. This inefficiency occurs because the market demand curve does not account for the positive externalities of flu vaccinations, leading to a situation where only QMarket quantity of vaccinations is exchanged and the marginal social benefit (MSB) exceeds the marginal social cost (MSC). To address this, the government can intervene by providing a subsidy to consumers of flu shots. This government subsidy ideally would equal the difference between the marginal social benefit and the marginal private benefit, incentivizing individuals to get vaccinated and thus increasing the level of vaccinations to the socially optimal quantity of Qsocial.