Question

Sahar is a lecturer of a large class of economics students. Sahar can’t stand being ill and so decides to get a flu vaccination. On the other hand, some of Sahar’s colleagues decide to skip their vaccinations because they are too busy. Do the lecturers’ decisions on whether or not to get vaccinated affect their students and if so how? Describe any market failures that arise from this situation. Describe how the government can address any of these market failures. What are some of the potential downsides to government intervention in this case?

Answer 1

When Sahar decides to get vaccinated, she prevents the children from falling sick as well. It is like imposing a positive externality on to the students by reducing their exposure to the disease.

On the other hand, the decision to not get vaccinated by Sahar's colleagues imposes a negative externality on to the students by increasing their exposure to the disease.

This is a case of market failure because the free market outcome is different from the socially efficient outcome for the market where Sahar's colleagues are present.

Government can address the market failure by intervening and making it mandatory for the teachers to get vaccinated.

Downside of government intervention in the market are the rigidness of the policy to get vaccinated which would impose a cost on to the teachers, where in the benefits and costs would differ for each teacher.

Also, government expenditure of regulation and implementation of the policy would increase, thereby reducing market welfare.