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analyse and draw an externality diagram for public healthcare

analyse and draw an externality diagram for public healthcare

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Answer #1

Public health has greater social benefits than private health where private demand (shown by private benefits) meet the supply of healthcare services at E. This is the private equilibrium which is too low for the society.

This happens, for example, when there are no governmental support such as subsidies or a law that mandates a given health level such as a law that mandates vaccinations. Good health has external benefits that go beyond the private ones, This is the reason why private benefits (Q0) are lower than societal benefits (at Q1).

With such law in practice the demand for healthcare services will shift out and so new equilibrium is at F where social demand determines societal level of public health.

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