Question 4

(a) The Covid-19 is a highly contagious disease. Although there are vaccines for Covid-19, the vaccination is not free and there are side effects of the vaccine, making it less suitable especially for senior citizens. The government encourages people to go for vaccination against Covid-19 but make it optional. Discuss with a suitable market diagram whether the vaccination market is efficient. Will the vaccination market be efficient if the government makes it compulsory for all people to take the vaccine? Explain with a suitable diagram.

(15 marks)

(b) Consider a market with three consumers A, B and C. A has the demand function P = 20 - Q, B has the demand function P = 12 - 0.5Q and C has the demand function P = 8 - 0.5Q. The marginal cost of producing a product is constant at $8.

(i) If the product is a private good, compute the market equilibrium quantity.

(5 marks)

(ii) Will your answer be different if the product is a public good instead? Compare your answer with (i).

(5 marks)