Model essay (a): why too few people get vaccinated

What this lesson teaches

• I can explain deadweight loss as society's lost net benefit when output is not at the social optimum.

  Syllabus 9570, 2.3.1(c). Governments' Microeconomic Objectives: Deadweight loss results when the social optimum is not achieved; Deadweight loss can be explained as the reduction in net benefit to society when output level is not at the social optimum

• I can explain the causes of market failure: public goods, externalities, information failure, immobile factors and market dominance.

  Syllabus 9570, 2.3.2(b). Market Failure and its Causes: Markets may fail in terms of; non-provision of public goods due to non-rivalry and non- excludability; non-socially optimal levels of goods and services due to the presence of externalities, information failure (including asymmetric information), immobility of factors of production, and market dominance

Make a guess

Getting a flu jab protects you from flu. Is that protection the positive externality?

1. No. The externality is the benefit to other people.
2. Yes, because the jab gives a health benefit.
3. No. The externality is the cost of making the vaccine.

The answer to part (a)

Introduction

A market allocates resources efficiently when it produces where marginal social benefit (MSB) equals marginal social cost (MSC). The free market for flu vaccination is likely to fall short of this for two reasons. Vaccination creates benefits for people other than the buyer, and people may not know how much the vaccine helps them. Both lead to underconsumption and a loss of welfare.

Paragraph 2: a positive consumption externality

When people decide whether to get a flu vaccine, they compare their marginal private benefit (MPB) with their marginal private cost (MPC). The MPB includes a lower chance of falling ill and missing school or work. The MPC is the price plus the time spent at the clinic. People ignore the benefit to others. A vaccinated person is less likely to catch flu and pass it to family, classmates and colleagues. Fewer flu cases also mean fewer patients in hospital, which frees beds and staff for others. These third parties gain without paying. Their gain is the marginal external benefit (MEB), so MSB equals MPB plus MEB, and MSB lies above MPB.

Paragraph 3: the welfare loss in Figure 1

In Figure 1, the free market settles where MPB equals MPC, at Qp. The socially efficient quantity is where MSB equals MSC, at Qs. Assuming there are no external costs, MPC equals MSC. For every vaccination between Qp and Qs, the benefit to society (MSB) is greater than the cost to society (MSC). Yet these vaccinations are not bought, because buyers see only their private benefit. Too few people are vaccinated, and society loses the welfare shown by the shaded deadweight loss (DWL).

Paragraph 4: imperfect information

The second reason is imperfect information. Many healthy young adults think flu is just a bad cold. They underestimate both their chance of catching it and how ill it can make them. So the benefit they expect, their perceived MPB, is below the actual MPB. Present bias makes this worse. The cost of vaccination, an injection and a clinic visit, comes now, while the benefit comes months later and feels uncertain. People then choose where perceived MPB equals MPC, which is to the left of even Qp. They get fewer vaccinations than would be best for themselves, adding to the underconsumption from the externality.

Conclusion

Both a positive consumption externality and imperfect information make the number of flu vaccinations in a free market lower than the efficient number. The externality comes from benefits that spill over to others. The information failure comes from people misjudging their own benefit. Because the causes differ, they call for different policies, which part (b) weighs.

Margin notes: how each paragraph scores

Introduction

Defines efficiency (MSB = MSC) and names both sources of failure. The examiner can see from the start that the answer is two-pronged.

Paragraph 2

Develops the externality in full: the buyer's MPB and MPC, then who the third parties are and why they gain, then MSB = MPB + MEB. Concrete third parties (family, other patients) make the chain specific to flu, not generic.

Paragraph 3

Uses Figure 1 with every label: Qp, Qs, MSB, MSC and DWL. It explains why the DWL is a loss (benefit above cost for units not bought). This is the rigour L3 needs.

Paragraph 4

The second source with the same depth. It shows how the curve moves (perceived MPB below actual) and adds present bias, a behavioural reason that strong scripts include.

Conclusion

Separates the two causes clearly and links to part (b). No evaluation marks are available here, so it stays short.

Overall: L3, 9 or 10 marks

Two sources, each fully explained, one correct diagram and context. Explaining only the externality would cap the answer at L2 (about 6 marks).

Worked example: A 3-minute plan

Before writing, jot a plan like this. Two sources of failure, two full chains.

1. Intro: efficiency where MSB = MSC; two reasons the market falls short.
2. Externality: protects family and colleagues, frees hospital beds; MEB; MSB above MPB.
3. Figure 1: Qp below Qs; DWL.
4. Information: people underestimate flu; perceived MPB below actual; present bias.
5. Close: two causes, so two kinds of policy (sets up part b).

Watch out for this

Vaccination has a positive externality because the person who gets vaccinated is protected from flu.

That protection is the buyer's own private benefit (MPB). The externality is the benefit to other people: fewer infections passed on and less pressure on hospitals.

Check your understanding

Which sentence in a part (a) answer shows imperfect information rather than an externality?

1. Fewer flu cases free hospital beds, which helps other patients who need care.
2. Each vaccinated worker is less likely to infect colleagues, who do not pay for this benefit.
3. Young adults think flu is mild, so the benefit they expect is below the benefit they actually get.