RI Microecons Assignment

Y5 H2 Economics 2024 T3W9 Assignment – Microeconomic Objectives and Policies – Mark Scheme © Raffles Institution 1 During the covid pandemic students needed to be vaccinated to participate in sports activities or dine out in small groups. Discuss whether providing free vaccination alone is sufficient to ensure that youths take the shot. [15] Introduction: - Explanation is not aligned to the diagram. - The covid vaccine is a merit good. Left to the free market, youth are likely to under consume it due to imperfect information and positive externalities. - Briefly explain positive externalities in vaccinations and imperfect information and how it results in under-consumption. - Government needs to intervene to ensure optimal consumption of vaccination by youths. Body: R1: T: Free provision is sufficient - Due to high positive externalities from herd immunity (prevention of spread of illnesses to 3 rd parties, lower healthcare costs, higher productivity) , the underconsumption of Qe -Qs results in a deadweight loss of abc. - Briefly explain how free market and socially optimal output is determined. - The government could intervene by providing it for free or fully subsidize private firms e.g. Raffles Medical for the cost of the vaccine. - Assuming the subsidy is AB per dose, MPC1 shifts down to MPC2 (MPC1-subsidy). - At Pe, a surplus is created which puts downward pressure on the price. As the price falls, quantity demanded increases – increase willingness and ability to consume. Esp in the context of youths – lack of income / lower income. - New equilibrium price is 0, and quantity exchanged is Qfoc, where MPB=0. - Assuming that this coincides with Qs which is socially optimal (MSC=MSB), the dwl is eliminated and allocative efficiency is achieved. AT: Limitations - The negative externalities could be quite significa nt (from herd immunity - elderly who cannot be vaccinated) or information failure causes perceived MPB to be quite low – even when P=$0, Qe’ < Qs. - Imperfect information of the government in ascertaining extent of MEB → could there be over or underconsumption of vaccines? - High op cost of free provision. Point out area of government expenditure - the funds could be spent on subsidizing education that might benefit the youth more in the long run.

Y5 H2 Economics 2024 T3W9 Assignment – Microeconomic Objectives and Policies – Mark Scheme © Raffles Institution 2 R2: T: Free provision is insufficient and should be augmented with a demand side measure (either legislation or education). Case 1: Imperfect Information - Assume there is a high degree of imperfect info (alternatively could use positive externality to explain- see below) and Qs>Qe even with free provision. - Vaccine differentiated measures will influence the tastes and preferences of the youth since they enjoy social activities. - OR education/campaigns → give examples – HOW