L6 Flashcards
When are externalities present?
When costs/benefits of actions to other parties are not fully accounted for in decision making process tf individual interests are not aligned with societies!
HC externality examples?
Negative: smoking, drinking, drug-taking
Positive: getting vaccinated, going to the doctor
When does a negative externality occur? Draw a diagram of this?
When the MPB (ie. D curve) is greater than the MSB, therefore people consume at levels above the social optimum (diagram in notes)
When does a positive externality occur? Draw a diagram of this?
When the MPB (ie. D curve) is less than the MSB, therefore people underconsume, below the social optimum
When is the DWL triangle minimised?
When MSB=MC=MPB
What should be the aim of any externality eliminating policy?
To shift private consumption quantity to the social optimum
Why are positive externalities not welfare maximising?
Because they occur when MPB is less than MSB, therefore people will underconsume the good
4 types of externality in healthcare: consumption vs production and costs vs. benefits?
see notes
What are public goods?
They are goods that are non-rivalrous and non-excludable, tf end up being underfunded (eg. lighthouses)
What are merit goods, why are they underfunded?
Goods that should be funded on basis of need (eg. health/education); since they have positive externalities, they too are often underfunded (consumers ignore the positive benefit of their contribution to society when contributing tf underpay)
Explain the idea behind a caring externality?
Consumption of HC by one group improves the welfare of others - people derive utility from knowing others are well
In general, HC consumption is too low bc. consumers do not consider the positive externality when they buy HC tf -> economic argument for subsidisation of HC!
2 examples where vaccines have been very effective?
1) Measles (MMR vaccine):
2. 6m deaths/yr in 1980s, now only 73,000 (2014)
2) Polio:
350,000 cases/yr in 1988, now less than 1000/yr
3 vaccine types?
1) routine (babies, elderly etc.)
2) special (eg. pregnant women)
3) travel
Who does decision of vaccines often fall to?
Parents
2 Benefits of vaccines?
1) decrease risk of catching illness (private benefit)
2) decrease risk of passing on illness (social benefit)
Individual costs of vaccines? (3)
Financial, time, side effects etc.
Societal benefits of vaccines? (4)
Decrease risk of passing on illness, free-riding possibility, herd immunity (roughly 90% must be vaccinated), altruism (caring ext.)
Draw and explain the vaccines diagram?
See notes
MSB>MPB for each unit consumed
See problem with it too (DWL)
Policy solution for vaccines to eliminate the DWL? (what they must do and 2 ways to do it?)
Policy: need interventions to align incentives of individuals with those of social welfare (ie. go from Q(A) to Q(B), eq. output to econ. efficient output)
1) Subsidisation
2) Public provision
Why may public provision still not completely solve the problem of underconsumption in vaccines?
Because still other costs (eg. time, travel, side effects etc.)
Draw the diagram and explain how subsidising vaccines may solve the problem of underconsumption?
see notes for all info and diagram
What is a pigovian subsidy?
When the subsidy set=scale of externality tf social welfare is maximised
What did Nato et al. (2014) find regarding vaccines?
14.5% of elderly had pneumonia vaccine if they paid themselves, up to 52.1% if government paid
Other interventions to promote vaccine consumption? (4)
Info. distribution
Direct provision
Regulation (mandating)
Supply-side (subsidise pharma firms so they supply them)
