Question

Explain the concept of "herd immunity." Explain both its health effect, and what type of economic phenomenon it would be considered. Why might this illustrate an example of a market failure, and what policy prescription might be taken to remedy it?

Answer 1

When most of the people in the community get immune to certain disease then it decreases the chance of spreading that disease and it is called a herd immunity. It is an indirect way of protecting people from certain disease. It puts a positive health effect on the community. The economic phenomena that occur in herd immunity is a positive externality. In positive externality, the marginal social benefit exceeds the marginal private benefit. Positive externality leads to an underconsumption and then lead to a market failure. To remedy the problem of underconsumption policy of subsidy should be applied. Subsidy encourages consumption and then correct the market failure.