Question

Consider the market for vaccines where individuals only take into consideration their own private marginal benefit but not any external benefits from the vaccine. Also assume that the marginal cost of producing the vaccine is constant/flat. Is there a market failure in this vaccine market? If so, explain why and explain whether the equilibrium quantity of vaccines consumed is less than or greater than the optimal. What if individuals do take into consideration external benefits from vaccinations. Is there a market failure here? Why or why not?

Answer 1

In this market, as indiciduals are taking only own private marginal benefit, so it shows this market is a perfect competitive market where price is remains fixed and all sellers charge same price for the product. No there is no market failure because sellers are not incurring any extra cost, so we can assume that sellers are selling the product on that price, where they are receiving normal profit. As sellers are getting their profit as they decided, so we can say that vaccines consumed may be greater than the optimal.

If individuals started to take external benefits, so due to large number of sellers in the market, they may will borne the loss, so it may leads to market failure.