The Market for Flu Shots with Spillover Benefits

The market demand curve D_Market reflects only the marginal private benefit: what a vaccinated person gains from not catching flu. Supply is the marginal private cost of producing the shots. They meet at Q_Market and P_Market.

But a vaccinated person also makes everyone around them less likely to catch flu, a benefit no buyer counts. Adding it gives the marginal social benefit, Ds, which lies above market demand, and the socially worthwhile quantity Q_Social is larger than Q_Market. A voucher worth exactly the spillover closes the gap: suppliers receive P_Social, buyers pay only P_Subsidy, and the quantity rises to the socially optimal level. The slider sets how large the spillover benefit is.