Which policy would most effectively address a positive externality from vaccination?

• A. A per-unit tax on vaccines
• B. A per-unit subsidy for vaccines
• C. A price ceiling on vaccines
• D. A ban on unvaccinated individuals

Answer: (B)

Positive externalities from vaccination occur when the social benefits of getting vaccinated exceed the private benefits to the individual, because vaccination reduces the spread of disease and protects others even if they aren’t vaccinated. Because individuals only weigh their own private benefits and costs, the market tends to undersupply vaccines relative to the social optimum. A subsidy lowers the price per dose for the consumer, encouraging more people to vaccinate and pushing vaccination levels toward the socially optimal amount. This effectively internalizes part of the external benefit by making individuals more responsive to the broader social gains.

The other options don’t fit as well. A tax on vaccines would raise the price and reduce vaccination, worsening underconsumption. A price ceiling could create shortages or distort supply without ensuring higher uptake in a way that targets the external benefit. A ban on unvaccinated individuals uses coercion rather than aligning private incentives with social benefits and isn’t as efficient at internalizing the externality.