Question
Refencing Lee, R. (2019). Economics for healthcare managers ( 4th ed.). When there is a negative externality, everyone knows that we must do something to
Refencing Lee, R. (2019). Economics for healthcare managers (4th ed.). When there is a negative externality, everyone knows that we must do something to correct it. But when there is a positive externality, since it is a good thing for society, some of us may think that we do not need to anything to fix it. It is a good problem to have, right? However, this is not the view of an economist.
When there is a positive externality, although it is a good thing for society, it is still a market failure. We know vaccination generates a positive externality to society. The reason why it is a market failure is that the equilibrium quantity of people getting vaccines in the free market (Q1) is too low compared to the socially optimal quantity (Q2). This is because when people make decisions on whether to get vaccines or not, they only consider their marginal private benefit, but not the marginal social benefit.
Therefore, although a positive externality is a good problem for society, we still need to fix it. Policies and solutions are needed to bring the too-low consumption to the socially optimal level.
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