If the marginal social benefit of the last unit of vaccination provided is greater than the marginal social cost, which policy can be used to achieve efficiency in the market for vaccination?

• A. A per-unit tax on vaccinations
• B. A per-unit subsidy for vaccinations
• C. Government purchase of vaccinations
• D. A price ceiling on vaccinations

Answer: (B)

When the marginal social benefit of an extra vaccination exceeds its marginal social cost, the market is not producing enough because individuals don’t capture the full benefit for society. A per-unit subsidy raises the private value of getting vaccinated by the subsidy amount, effectively shifting the private marginal benefit upward. This nudges people to vaccinate more until the private marginal benefit equals the marginal social cost, moving output toward the efficient level. So the subsidy directly internalizes the positive externality and expands vaccination to the socially optimal quantity. A tax would reduce vaccination, a price ceiling wouldn’t fix the externality or could cause shortages, and government purchase is a less precise, budget-dependent approach, whereas a subsidy cleanly incentivizes higher uptake.