ECO100Y1 Lecture Notes - Lecture 14: Influenza Vaccine, Allocative Efficiency, Social Cost
Document Summary
Positive: flu shot [if less likely to get flu, less likely to spread flu] Too much drinking of alcohol and too much smoking. To achieve allocative efficiency, the government could tax drinkers of alcohol and smokers, and subsidize [negative tax] flu shots. The consumption of alcohol adversely affects third parties [impaired driving and automobile accidents, for example] Social value = private value - value of externality. At q1, social value < private cost (allocative inefficiency) At q2, social value = private cost (allocative efficiency) To achieve allocative efficiency, the government imposes a sales tax on each bottle of alcohol consumed. *if a sales tax is imposed on the consumers of a product, the demand curve shifts downward by . sales tax results in a higher price paid by consumers [to reflect the negative externality] and, thus, less consumption of alcohol.
