Many antibiotics are no longer effective in eliminating infections because bacteria have evolved to become resistant to them. The more often an antibiotic is prescribed, the more quickly it becomes ineffective in curing bacterial infections. Some bacteria are now resistant to all but one or two existing antibiotics. An article in the Wall Street Journal notes, “In the U.S. alone, at least two million illnesses and 23,000 deaths can be attributed each year to antibiotic resistant bacteria.”

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 this fact make the case for a government subsidy of the production of antibiotics stronger or weaker? Briefly explain.