What can the flu teach us about economics and externalities? In this video, we go over how vaccines produce positive externalities that help people stay healthy.

What can the flu teach us about economics and externalities? In this video, we go over how vaccines produce positive externalities that help people stay healthy. When someone receives the vaccine, they pass along the positive benefits of the vaccine to others, generating positive externalities. However, when someone gets a vaccine, they bear all of the costs and only reap some of the benefits of the vaccine. The social value is larger than the private value, resulting in an an undersupply of flu shots. One solution to this problem is a Pigouvian subsidy — a subsidy on a good with external benefits.

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Show 1 Answer (Answer provided by Mary Clare Peate)
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Good questions! PD- There was indeed missing text to the second scenario of the practice questions, but it should be there now. Thanks for alerting us! Ana, 'girls in the classroom' does not provide an external benefit because, according to the research cited in the question, they are simply better behaved rather than actively increasing their peers’ ability to learn. Better behaved just means that other students around them can learn the material from the teacher without interruption. According to the limited research cited in the question, it would make no difference to a student’s ability to learn if a particular girl were in the classroom or not in the classroom (and assuming she was not replaced by a boy). In both instances, a student would be able to learn the material from the teacher without interruption. Again, this is according to the research cited in the question. There may be other research that finds girls actually increase the educational attainment of their peers through active participation etc., but this was not cited in the question.

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The last sentence should read “ Which external benefit is larger: honeybees’ external benefit to fruit farmers OR fruits’ external benefit to beekeepers? The question presents a new scenario in which we are not told who pays whom. The scenario in the question does not say that fruit farmers pay the beekeepers. Neither does it say that beekeepers pay fruit farmers to grow more fruit. It only says that 1. beekeepers' business (make honey) has a separate, external (unintended, incidental) effect on farmers. And that 2. farmers' business also has a benefit on beekeepers. The answer is d. We cannot determine which is greater. We could conclude which is greater only if we say who pays whom. If we saw that farmers pay beekeepers then we could conclude that the external benefit to farmers from beekeepers is greater. And yes, you are right that in that case, the additional beehives set up by beekeepers would be a good on the market for private goods, supplied by beekeepers, and demanded by farmers.

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