Final answer:
Consumers primarily gain surplus from a Pigouvian subsidy for a positive externality as they pay a lower net price, leading to increased consumer surplus. Overall social surplus also rises as the market reaches the socially optimal level of production, reducing deadweight loss.
Step-by-step explanation:
When consumers in a market are given a Pigouvian subsidy for a positive externality, such as the flu shot example with spillover benefits, both consumers and producers gain surplus, as the market moves closer to the socially optimal level of production. However, the primary beneficiary of the subsidy will often be the consumers, since the subsidy is designed to lower their net cost, which increases consumer surplus. The Social surplus, which is the sum of consumer surplus and producer surplus, also increases as the quantity of flu vaccinations rises to the socially optimal level.
When the government provides a Pigouvian subsidy to compensate for the difference between the marginal social benefit and the marginal private benefit, the market demand curve adjusts to include the positive externality. This leads to an increase in the equilibrium quantity to the socially optimal quantity, QSocial, thereby reducing deadweight loss and maximizing total surplus.