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

Vaccination is an example of positive externality because it has spillover effects in the economy and marginal social benefit associated with vaccination is more than marginal private benefit of vaccination. If the lecturer gets vaccinated then others will also get vaccinated because it will reduce their risk from getting the vaccine. This positive spillover effect makes vaccination a positive externality.

Yes, this is an example of market failure because number of people who will get vaccination is less than optimal number of people who should be vaccinated because it is an example of positive externality.

Government can address the market failure by subsidizing the cost of the firm providing vaccination which will reduce their overall cost and shift the supply curve of vaccine rightwards by increasing vaccination supply and thus increasing number of people who get vaccinated to the socially optimal level. However, it might lead to increase in budget deficit of the government because no revenue is earned in return.