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 lowers the effective out-of-pocket price buyers face, so demand shifts outward (to the right).

1) Relevant knowledge points and concepts
- A subsidy paid to consumers reduces the price they pay, increasing quantity demanded at every posted market price (a demand shift, not a supply shift).
- Market equilibrium is where quantity demanded equals quantity supplied; a rightward shift in demand raises equilibrium quantity and typically raises the market price received by sellers.
- The price consumers actually pay equals the market price minus the subsidy; thus consumers pay less even if the market price rises.

2) Step-by-step reasoning
- Let the market price charged by suppliers be P. With a 50% consumer subsidy, each buyer effectively faces price P_net = 0.5·P.
- Original demand function D(P) becomes D_new(P) = D_original(P_net) = D_original(0.5·P). For any given P, D_new(P) > D_original(P), so demand shifts right.
- New equilibrium solves S(P) = D_original(0.5·P). Because demand is larger at each P, the intersection with the upward-sloping supply curve occurs at a higher P and higher Q.

3) Example calculation (intermediate steps)
- Suppose S(P) = 10P and D(P) = 100 − P.
- Original equilibrium: 10P = 100 − P → 11P = 100 → P0 = 9.0909, Q0 = 90.909.
- With 50% subsidy: D_new(P) = 100 − 0.5P. New equilibrium: 10P = 100 − 0.5P → 10.5P = 100 → P1 = 9.5238, Q1 = 95.238.
- Market price rises from 9.09 → 9.524; quantity rises from 90.91 → 95.24. Consumers’ net price = P1/2 = 4.762, which is lower than P0.

4) Why the correct answer is correct
- The subsidy causes an increase in demand (rightward shift), which increases equilibrium quantity. Because supply is upward-sloping, the market price received by sellers rises. Thus “an increase in demand leading to a higher price and larger quantity” is the correct description.

5) Why the other choices are incorrect
- (a) Claims an increase in supply: a consumer subsidy does not change producers’ costs, so supply doesn’t shift.
- (c) Is vague: “expansion in demand leading to a larger quantity” omits that the market price typically rises; it’s less precise than (b).
- (d) A decrease in demand is the opposite of what occurs when consumers pay less.

6) Conclusion
The correct choice is b. An increase in demand leads to a higher market price and a larger quantity of vaccinations consumed, consistent with the provided answer.

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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