Final answer:
Getting a flu shot results in a positive externality, where the market without intervention fails to produce the socially optimal quantity of vaccinations. Government subsidies can help achieve the optimal level by aligning marginal social benefit with marginal private benefit.
Step-by-step explanation:
Getting a flu shot results in a positive externality. A positive externality occurs when the actions of an individual or business result in benefits to others that were not considered in the decision-making process. In the case of flu shots, the market demand curve does not fully capture the additional benefits that vaccinated individuals provide to society by reducing the spread of the flu. As a result, without intervention, fewer flu shots would be administered than is socially optimal (QMarket). The marginal social benefit of vaccinations exceeds the marginal social cost, suggesting that society as a whole would be better off if more individuals were vaccinated (QSocial).
When the government steps in to provide a subsidy to consumers of flu shots, it allows the vaccination levels to increase to the optimal level. The subsidy effectively narrows the gap between the marginal social benefit and the marginal private benefit, encouraging more individuals to get vaccinated and thus increasing the positive externalities associated with vaccinations.