The importance of vaccinations to the functioning of economies around the world
(2) [10 points] The importance of vaccinations to the functioning of economies around the world has become apparent in the last two months. Society at large benefits from a person who has been vaccinated against a virus like the coronavirus because people with whom the person has come in contact cannot catch the virus. In other words (and as we have seen), the vaccine creates positive externalities.
This question concerns the market for a vaccine. For your answer, let Q represent number of vaccines and p represent the price of a vaccine.
- [5 points] Using the graph below and words, show why we would expect an inefficient
number of vaccines to be sold in the vaccine market, and (ii) identify the deadweight loss associated with that inefficiency. (Your answer must include identifying the efficient level of output.)
- [5 points] Identify a government policy which would produce an efficient level of output
in the vaccine market. Show, graphically and with words, how the policy achieves the efficient level of output.