Imagine the government introduces a new subsidy for measles vaccinations. The government will pay consumers of the vaccination 50% of the vaccination price. Which effect is most likely in the market for vaccinations?

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BlackTom AI · Accepted Answer

Consider the scenario: a subsidy to consumers lowers the effective price they pay, which makes Vaccinations more attractive at every price level. This effectively shifts the demand curve to the right, because at each price, more people are willing to buy vaccinations due to the lower out-of-pocket cost.

Option a: 'An increase in supply leading to a lower price and larger quantity of vaccinations consumed' would require the supply curve to shift right (a higher quantity at every price) or a fall in price due to a supply increase. A consumer subsidy does not directly affect the cost or willingness of producers to supply vaccinations, so this option misattributes the effect to supply.

Option b: 'An expansion in demand leading to a larger quantity of vaccinations consumed' captures the idea of a rightward shift in demand, but it omits what happens to the market price. With higher demand, the equilibrium price generally rises (assuming downward-sloping supply). If the prompt emphasizes the accompanying price change, this option is incomplete.

Option c: 'An increase in demand leading to a higher price and larger quantity of vaccinations consumed' correctly integrates both the demand shift and the resulting higher equilibrium price along with a larger quantity. The subsidy to consumers raises willingness to pay, shifting the demand curve outward, and the intersection with the (upward-sloping) supply curve yields a higher price and greater quantity.

Option d: 'A decrease in demand leading to a lower price and smaller quantity of vaccinations consumed' contradicts the effect of a consumer subsidy, which should increase, not decrease, demand. Therefore this option wrongly describes the directional change in demand and outcomes.

In summary, the subsidy changes buyers’ incentives, shifting demand right and typically increasing both the market price and the quantity transacted, while other options misstate the direction of the shift or attribute the change to the wrong curve.

Imagine the government introduces a new subsidy for measles vaccinations. The government will pay consumers of the vaccination 50% of the vaccination price. Which effect is most likely in the market for vaccinations?

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From the list below, the best definition of the word 'subsidy' is

Imagine the government introduces a new subsidy for measles vaccinations. The government will pay consumers of the vaccination 50% of the vaccination price. Which effect is most likely in the market for vaccinations?

From the list below, the best definition of the word 'subsidy' is

A(n) to producers is a payment from the government that decreases producers' cost and encourages them to produce more output.

Which of the following are the effects of a subsidy to producers? More than one answer may be correct.

Government could correct the overallocation of resources by subsidizing consumers of the product.

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