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Chapter 5: Q 2 (page 118)
How might the federal or state governments act to try to boost the external benefits arising from inoculations against the measles virus?
The government can grant special privileges to those with the measles vaccination such as subsidized air tickets, and complimentary food.
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Distinguish between private goods and public goods and explain the nature of the free-rider problem.
Consider panel (b) of Figure. Assume that a careful study of the likely transmission of influenza in light of a changed population distribution has revealed that the external benefits from inoculations are greater than currently displayed in the graph. In light of this information, is the under allocation of resources to the provision of flu-vaccine inoculations larger or smaller than indicated in panel (b)?
After a government implements a voucher program, granting funds that families can spend at schools of their choice, numerous students in public schools switch to private schools. Parents’ and students’ valuations of the services provided at both private and public schools adjust to equality with
the true market price of educational services. Is anyone likely to lose out nonetheless? If so, who?
A government offers to let a number of students at a public school transfer to a private school under two conditions: It will transmit to the private school the same per-pupil subsidy it provides the public school, and the private school will be required to admit the students at a below-market net tuition rate. Will the economic outcome be the same as the one that would have arisen if the government instead simply provided students with grants to cover the current market tuition rate at the private school? (Hint: Does it matter if schools receive payments directly from the government or from consumers?)
Many people who do not smoke cigars are bothered by the odor of cigar smoke. If private contracting is impossible and in the absence of any government involvement in the market for cigars, will too many or too few cigars be produced and consumed? From society’s point of view, will the market price of cigars be too high or too low?
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