SOLUTION: University of New Hampshire Economics Question

Module 4
Discussion Questions
Remember: I will evaluate your participation on whether: 1) You answered all the questions; 2)
Your answers and comments reference (or use) and correctly apply the theories, concepts or
ideas from the required readings, lectures and related media (if there are any).
Answer the following questions after you have read the required articles and viewed the required
lectures and related media (if there are any):
“For most diseases, vaccination rates must remain very high–up to 95% in some cases–to
establish what’s known as herd immunity, the protection provided by an entire community to the
handful of people who can’t be vaccinated because of a demonstrable medical condition. In the
U.S. at large, the numbers are pretty good, with close to 95% of incoming kindergartners in
compliance with vaccine guidelines, according to a 2012–13 survey from the U.S. Centers for
Disease Control and Prevention (CDC).
But that figure conceals a lot of holes. Louisiana has an impressive 96.6% rate for the measles,
mumps and rubella (MMR) vaccine and a 98.3% rate for diphtheria, tetanus and pertussis.
Mississippi leads the nation with a near perfect 99.9% for both. California, meanwhile, clocks in
at just 92.7% and 92.5%, and Colorado rolls in last at a woeful 85.7% and 82.9%. In New York
City, vaccination rates in public schools top 98%. But a recent survey of 245 of the city’s private
schools revealed that half of them are below 90%, and 37 of them are below 70%. Nine schools
fall in a range from 41% down to 18.4%.
The recent outbreaks of measles in New York City and Orange County, California; whooping
cough throughout the entire state of California; and mumps in the communities around Ohio
State University in Columbus have brought to fore the issue of differing vaccination rates across
the states. These outbreaks has also brought attention to the anti-vaccination movement.
The anti-vaccination movement is more prominent in blue states. Its adherents are primarily
well-educated and comparatively affluent people who consider themselves well informed. One of
them is Julie Snoeberger. Julie doesn’t care what you want to call her–and there are few names
you could come up with that she hasn’t heard before. ‘I’ve been called a crackpot and a baby
killer,’ she says.
Snoeberger began steeling herself against this kind of criticism more than 15 years ago, when her
baby son began getting his first rounds of vaccines. After his 12-month shots, he developed
chronic ear infections. At 18 months, she says, the MMR vaccine transformed him within 48
hours from a happy, verbal child to one who was violent, antisocial and had ‘lost all his words.’
The arguments that have been central to the antivaccine movement for decades are familiar: The
shots are overused and teeming with toxins. They cause autism, bipolar disorder, ADHD,
allergies and more. They are profit centers for greedy doctors and Big Pharma, and everybody’s
keeping the dangers quiet. ‘The conspiracy theories come up a lot,’ says Joan Bowe, director of
personal health for the Delaware County General Health District in Ohio, which was hit by the
mumps epidemic earlier this year. ‘They usually involve the government wanting the vaccines
out there.’
None of that is true, but that doesn’t mean the rumormongers are ill-intentioned. ‘These are good
families trying to make the best call they think they can for their kids,’ says Paul Craft, the
superintendent of schools in Delaware County.”
1. Should the government (whether federal, state or local) intervene to increase vaccination
rates? If yes, how can such intervention be justified on economic grounds? To be
specific, how can you use the concept of market failures to justify government
intervention in this case?
2. If you believe that the government should not intervene, how can non-intervention be
justified? To be specific, how can you use Friedman’s argument about individual freedom
to justify non-intervention?
3. Which should take priority, the needs of the majority, or the rights of individuals to make
decisions for themselves? In this case, is it possible to strike a balance between the needs
of the majority and individual rights? How?
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It is common to classify the economic actions of government as falling
into the following three categories, sometimes referred to as a Musgravian
classification after the economist Richard Musgrave.l
. Stabilization
. Redistribution
. Allocation
In the Musgravian scheme the first two functions should be entirely the
province of the national government. The last function, allocation, should
be the province of all three levels of government, with the level of government that performs the function corresponding to the area over which the
benefits of the function are distributed. The logic behind this division of
roles will become apparent.
Stabilizing activities are those intended to stabilize the running of the
national economy. This will thus include antirecessionary policy at low
points in the business cycle and anti-inflationary policy at high points in
the business cycle. Or, in commonly used terms, it will be expansionary at
some times and contractionary at others. Stabilization goals can be pursued
through fiscal policy (taxes and expenditures) and monetary policy (actions
that affect the money supply and the interest rate). It is generally understood that stabilization is the province of the federal government, if only
because it would be virtually impossible for 50 state governments to coordinate their actions to pursue such goals.
One link between the macroeconomic issue of stabilization and the microeconomics that is the subject of this book is that they meet on the issue
of efficiency. Clearly, if there is involuntary unemployment the economy is
not operating at full efficiency, as some resources are not only not in their
highest use, but are not in any economic use at all. And efficiency is one
of the primary concerns of the microeconomist. Most microeconomic analyses assume full employment but the microeconomist understands that this
is a necessary assumption and not a statement of fact.z
Theories are sometimes made obsolete by events, and something like that
may be happening to the stabilization concept. The old Keynesian wisdom
was that governments were to run budget surpluses at the top of the business cycle to reduce aggregate demand and lower inflationary pressures,
and to run deficits at the bottom of the business cycle to increase aggregate
demand. In a period when the federal deficit is several hundred billion
dollars a year even at the ro:
Then, too, the growing volur:.=
of capital across national bo:i.:
ernment to control the ler-el ,:: :
tional view were being der e. -:
might thus be somewhat less ::
Redistribution refers to rh. :
downward direction. This is ,:::
and income transfers. It is ais:
services, for example, publr; –
The Musgravian argumer:
solely of the federal governr:.:
redistribution would avoid ;:-,
aid. Such migration, unrei::.:
would necessarily be inefficr..-:
A more powerful argumer:. l
interstate and intermunicrp:. ::
state and local government :: :’
between places for economl: ,,
local taxes low and local lab’c: :
to lower-income people u’ou,:
state or locality less attracri-. :
residence for the wealthr’. : :
there is to be a high level oi :=:
governmental unit that doe.
namely, the federal governn::
Allocation refers to actio..:
output of the economy. Cie::
services are allocative. This :.
rectly produced by governr:.i:
taxation and subsidization :.allocative effects in that the’,’ :
forbid or discourage expenr : Although separate in co:;.::
twined in reality. The deci.r. :
in that it is allocating part : :
to something else. It is als,- :.:
people at below cost, thus :;i.:
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expenditures for it vis-d-vis the business cycle, it may also have
stabilizing (or destabilizing) effects. In some textbooks transfer payments
such as social security and unemployment insurance are referred to as “automatic stabilizers” precisely because they do not move with the business
cycle. A program that appears to be a pure transfer program such as Social
Security will have indirect allocational effects in that its beneficiaries will
spend their incomes in somewhat different patterns than other persons.
Thus, changes in the amount distributed through the Social Security program will change the pattern of goods and services produced by the nation’s
of the
Reality and the Musgrauian prescription The actual pattern of government activity, while it does not correspond precisely to the Musgravian
prescription, does correspond to it roughly. In the realm of stabilization,
monetary policy is entirely a federal matter administered through the Federal Reserve System. And it is only the federal government that considers
the effect of its fiscal behavior on the business cycle. While it is true that
the aggregate effect of state and local fiscal behavior may be procyclical at
some times and contracyclical at other times, no state or local government
worries about the effects of its actions upon the national economy. Rather’
budgetary and financial officers at the state and local levels worry about
the effects that national economic trends will have on their revenues, borrowing costs, and expenses.
Not all redistribution is done by the federal government, but the largest
programs are federal. Slightly over half of the federal budget in 1992 was
devoted to “human resources” which are largely transfer programs. The
largest transfer program, Social Security, and the second largest, Medicare,
are entirely federal. Medicaid is a joint federal/state program with somewhat more than half of the costs paid by the federal government. The same
is true of pubiic assistance. Food stamps are funded entirely by the federal
government,6 and so on. Note, also, that the federal tax system is substantially more progressive than those of the states and localities. The primary
reason, as discussed further in Chapter 8, appears to be the matter of interplace economic competition discussed earlier. Allocation is a function of
all three levels of government. It occupies the remainder of this chapter.
The third of the Musgravian roles of government is allocation. If the
market were able to allocate all of the resources of the economy in a way
that we thought was satisfactory there would be no allocative role for government. But the market by itself does not do this and that takes us to the
subject of market failure.T The four types of market failures discussed in
this section are (1) public goods, (2) externalities, (3) monopoly, and (4)
Public Goods
Public goods are gene f .t.
discussed below, noTtex. ::..-.:
the view that the former r: Others take the vieu’ th::
exhibit both properties.’
1. Nonexcludabilit’. :

the nonpayer from con!-.:’
interested individual’- not pay. Thus, nonexc I u : -‘. .consuming the good or ..:
good. If the nonpal er . .: :
cannot be created and :’. philanthropy) or it rl’iLl : : ‘
2. Nonrivalry. This r-.=.:
*-ith :… The argument for reqLr ;- ” * ‘
is based on efficieno’. I: :-..
would require that ele :’. :
permitted to make u.c
be a matter of life or – . ‘
pleasure for the person , :r :’
does not interfere
person on the beach ir ‘
way detracts from SoFt; r :
rivalry means that the :::,,:–
service is 0.e As noted ::.’
Thus, for a nonrival g., : :
provide goods at a pn.. :
unlike nonexcludabilitr. – ‘
It is entirely possible t,: ::
pletely nonrival so lon: ., , reason nonrivalrl it r ‘
Some goods are pu:. :
Many others displav s1-::’: :
of goods. Those locai-:
consumer goods. is .- -:
excluded from consum::
is shown in the upp.r .-:
is characterized bv no1:r, :
charge for the light iro:: in no way interferet u r::’
right corner. Narion.rl .:.’.
is flood control. There r. ‘
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lr (snqJ ‘1e,rr: dleralduror sI uottdtunsuor puB uortdrunsuof, tuorJ PaPnIJXO
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