Micro 6.4 Positive Externalities- ACDC Econ

The video discusses market failures, focusing on positive externalities using the example of flu shots. It explains how the free market fails to produce the allocatively efficient quantity due to unaccounted social benefits. The video illustrates the demand and supply curves, highlighting the difference between private and social benefits. It identifies the problem of underproduction and suggests government subsidies as a solution to achieve optimal production levels.

What is a market failure in the context of positive externalities?

• When the market produces goods at a lower cost

• When the market fails to produce the right quantity

• When the market produces the allocatively efficient quantity

• When the market produces too much of a good

In the context of flu shots, what does the demand curve represent?

• Marginal social cost

• Average benefit

• Total cost

• Marginal private benefit

Why is the demand curve for flu shots considered to be in the wrong spot?

• It overestimates the marginal private benefit

• It underestimates the marginal social cost

• It only considers the private benefit, not the social benefit

• It does not account for the marginal social cost

What is the main problem identified with the free market production of flu shots?

• Too many flu shots are produced

• Too few flu shots are produced

• The cost of production is too high

• The demand for flu shots is too low

How can the government correct the underproduction of flu shots in the market?

• By imposing a tax on flu shots

• By providing subsidies to consumers

• By reducing the cost of production

• By increasing the price of flu shots