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 effectively reduces the out‑of‑pocket price for buyers, which shifts the demand curve to the right (an increase in demand). Relevant concepts: demand vs. quantity demanded, price subsidy incidence, and equilibrium where demand equals supply.

Step‑by‑step reasoning with a simple algebraic example:
- Let initial linear demand be Qd = a − bP and supply Qs = c + dP, with a, b, c, d > 0. Equilibrium without subsidy: a − bP0 = c + dP0, so P0 = (a − c)/(b + d).
- A subsidy s paid to consumers means a buyer who pays market price P effectively pays P − s. New demand is Qd' = a − b(P − s) = (a + b s) − bP. This is a rightward shift (increase in demand) by the vertical amount b s.
- New equilibrium: a + b s − bP' = c + dP' → P' = (a + b s − c)/(b + d) = P0 + (b s)/(b + d). So the market price P' (price received by sellers) increases relative to P0.
- Quantity rises: Q' = c + dP' > c + dP0 = Q0. Consumers’ net out‑of‑pocket price is P' − s = P0 − (d s)/(b + d), which is lower than the original P0, so buyers pay less net while sellers receive a higher gross price. The subsidy is split between buyers and sellers depending on elasticities (b and d).

Why the correct answer is correct:
- The consumer subsidy shifts demand right, raising equilibrium quantity and increasing the market price received by suppliers (even though consumers’ net price falls). Thus “an increase in demand leading to a higher price and larger quantity” is the best description.

Why the other choices are incorrect:
- (b) “An expansion in demand leading to a larger quantity” is vague and omits the predictable increase in market price; also “expansion” often means movement along the curve, not a shift.
- (c) A decrease in demand is the opposite of what a subsidy does.
- (d) An increase in supply is wrong because the policy affects buyers’ effective price, not producers’ costs.

Confirming final answer: a. 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?单项选择题

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