Asked by Nayely Quintero on Jul 15, 2024
Verified
Assume that price underestimates the value that society places on the flu vaccine. If firms produce where P = MC, firms will be producing
A) the socially efficient amount of flu vaccine.
B) more than the socially efficient amount of flu vaccine
C) less than the socially efficient amount of flu vaccine.
D) so that consumer surplus is zero.
Socially Efficient
An economic condition where resources are allocated in a way that maximizes the net benefits to society as a whole.
Flu Vaccine
A vaccine designed to protect against the influenza virus, aiming to reduce the incidence of flu and its associated complications.
Underestimates
Errors or judgments that result in a lower estimation of quantity, value, or importance than is actually the case.
- Become familiar with the theory of market failure and what leads to it.
- Understand the concept of social efficiency and how market prices can misrepresent societal value.
Verified Answer
GS
Gurnoor SinghJul 18, 2024
Final Answer :
C
Explanation :
When the price underestimates the value society places on the flu vaccine, producing where price equals marginal cost (P = MC) results in less production than the socially efficient amount. This is because the social value of additional vaccinations (external benefits to others from reduced transmission) is not fully captured in the market price.
Learning Objectives
- Become familiar with the theory of market failure and what leads to it.
- Understand the concept of social efficiency and how market prices can misrepresent societal value.