Chapter 5: Q 2 (page 118)
How might the federal or state governments act to try to boost the external benefits arising from inoculations against the measles virus?
The government can grant special privileges to those with the measles vaccination such as subsidized air tickets, and complimentary food.
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Many people who do not smoke cigars are bothered by the odor of cigar smoke. If private contracting is impossible and in the absence of any government involvement in the market for cigars, will too many or too few cigars be produced and consumed? From society’s point of view, will the market price of cigars be too high or too low?
An online video game has the technical capability for a large number of players to participate, as long as the game administrator works to ensure the constant functionality of the game. Adding more players deprives no other participants of the entertainment services provided by the online game. It has been easy, however, to set up a system for excluding participation by anyone who fails to contribute $5 per month to a fund that ensures covering extra expenses generated by that player's participation. Is this game a public good?
Why do you think that the federal government requires rail operators to mount expensive horns and sound them at prescribed decibel levels at all street crossings?
Scans of internal organs using magnetic resonance imaging (MRI) devices are often covered by subsidized health insurance programs such as Medicare. Consider the following table illustrating hypothetical quantities of individual MRI testing procedures demanded and supplied at various prices, and then answer the questions that follow.
| Price | Quantity Demanded | Quantity Supplied |
| \(100 | 100,000 | 40,000 |
| \)300 | 90,000 | 60,000 |
| \(500 | 80,000 | 80,000 |
| \)700 | 70,000 | 100,000 |
| \(900 | 60,000 | 120,000 |
(a) In the absence of a government-subsidized health plan, what is the equilibrium price of MRI tests? What is the amount of society’s total spending on MRI tests?
(b) Suppose that the government establishes a health plan guaranteeing that all qualified participants can purchase MRI tests at an effective price (that is, out-of-pocket cost) to the individual of \)100 per test. How many MRI tests will people consume?
(c) What is the per-unit price that induces producers to provide the amount of MRI tests demanded at the government-guaranteed price of $100? What is society’s total spending on MRI tests?
(d) Under the government’s coverage of MRI tests, what is the per-unit subsidy it provides? What is the total subsidy that the government pays to support MRI testing at its guaranteed price?
Consider panel (b) of Figure. Assume that a careful study of the likely transmission of influenza in light of a changed population distribution has revealed that the external benefits from inoculations are greater than currently displayed in the graph. In light of this information, is the under allocation of resources to the provision of flu-vaccine inoculations larger or smaller than indicated in panel (b)?
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