Question

Livestock farmers frequently give antibiotics to their herds. The antibiotics create drug resistant bacteria, making them less effective. This harms future users of antibiotics who will be using less-effective drugs.

1. What is the nature of the market failure?
2. Explain whether livestock farmers are more likely to overuse or underuse antibiotics

Answer 1

a) There is a negative externality in the market for farmers because of there use of the antibiotics. Here, the social cost of using the antibiotics are higher than the benefit that the farmers are getting by using it.

b) The livestock farmers are more likely to overuse the antibiotics because as the bacteria become resistant they will take more antibiotic to show the desired effect and to get a better output the farmers will be using more and more antibiotics this will be like an increasing cycle.