Many antibiotics are no longer effective in eliminating infections because bacteria have evolved to become resistant to them. Some bacteria are now resistant to all but one or two existing antibiotics. In 2015, the Obama administration proposed subsidizing research aimed at developing new antibiotics.
a. Are there externalities involved in the market for antibiotics that would require a government subsidy to achieve an economically efficient outcome? Briefly explain.
b. Many people have health insurance that covers the majority of the cost of their prescription drugs, including antibiotics. Does that fact make the case for a government subsidy of the production of antibiotics stronger or weaker? Briefly explain.