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?

Question

BlackTom AI · Accepted Answer

A consumer subsidy reduces the out-of-pocket price buyers face, which effectively shifts the demand curve outward (to the right), raising equilibrium quantity and typically raising the market price received by sellers.

1. Relevant knowledge points and concepts
- A subsidy to consumers lowers the price consumers pay per unit, increasing their willingness to buy at any given market price (demand shifts right).
- Market equilibrium is determined by the intersection of supply and demand; a rightward demand shift increases equilibrium quantity and, if supply is upward sloping, increases the equilibrium price received by sellers.
- A subsidy to consumers is distinct from a subsidy to producers (which shifts supply).

2. Step-by-step reasoning
- Let the supply function be S(p) = c + d·p (d > 0) and the original demand be D(p) = a − b·p (b > 0), where p is the market price.
- With a 50% consumer subsidy, the consumer’s out-of-pocket price p_c = p · (1 − s) = 0.5·p (s = 0.5).
- Consumers’ demand as a function of market price becomes D_new(p) = a − b·p_c = a − b·(0.5·p) = a − 0.5·b·p, which is greater at every p than the original D(p) = a − b·p.

3. Intermediate algebraic steps (equilibrium)
- Original equilibrium: c + d·p0 = a − b·p0 ⇒ p0 = (a − c) / (b + d).
- New equilibrium after subsidy: c + d·p1 = a − 0.5·b·p1 ⇒ p1 = (a − c) / (d + 0.5·b).
- Since d + 0.5·b < d + b, p1 > p0. Quantity Q = S(p) rises because p1 > p0 (and S is increasing).

4. Why the correct answer is correct
- The algebra and standard supply–demand logic show a consumer subsidy shifts demand right, increasing equilibrium quantity and (with upward-sloping supply) increasing the market price received by sellers. That matches option d: an increase in demand leading to a higher price and larger quantity consumed.

5. Why other options are incorrect
- a. Partially correct (demand expands and quantity rises) but omits the typical rise in price; option d is more precise.
- b. Incorrect: the subsidy lowers consumer cost, so demand increases, not decreases.
- c. Incorrect: a consumer subsidy does not shift supply; supply would shift only if producers received a subsidy.

6. Conclusion
- Therefore the subsidy causes an increase in demand, raising both equilibrium price and quantity. This confirms the correct answer: d. An increase in demand leading to a higher price and larger quantity of vaccinations consumed.

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?Single choice

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