Maket Failure - Real world examples

Question 1

Provide an example for positive externalities on the side of production (vaccines)

Answer 1

According to coppenhagen consensus: Every dollar spent on expanded immunization = 60$ social, economic, and environmentla benefits for society
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IN A FREE MARKET, NOT SOCIAL OPTIMAL:
- Implications:
- Supply of vaccines would be controlled by private clinics, private hospitals, etc.
- purchase vaccines from private firms.
- price of vaccines = high, quantity vaccines consumed = lower.

lower level of vaccine consumption in a free market without any government intervention.

free market would under-allocate resources to vaccinations.

Less than optimal level of vaccine consumption leads to a less than socially optimal market outcome, resulting in market failure.
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In Australia during covid 19…

• Gov. invested 1.9 Billion AUD towards direct purchasing of vaccinations for provision
• Australian gov. spent additional 9.3 billion into subsidising research for vaccine.

Question 2

Provide an example for positive externalities on the side of consumption (education)

Answer 2

“Five a day campaign” in UK
- Eating five portions of fruit and veg = prevention of health related issues or diseases, e.g

To improve the general public’s health, educate the public about the benefits of fruits and vegetables.

The improved health conditions of citizens will also increase the quality of human capital and labour productivity, benefiting society.

Fruits and vegetables are under-consumed. The campaign helps encourage more consumption of these foods, increasing marginal private benefit and eliminating positive externalities.

It is a long-term project and it takes a long time for the effect to be felt by the economy.

The campaign is not effective on the low-income groups as their fruit consumption levels were already low.

Question 3

Provide an example of a negative externality on the side of consumption (alcohol)

Question 4

Provide an example of a negative externality on the side of production (fossil fuel production)