I thought let's give this video a chance and I must say you guys are awesome. I was sleepy and was just listening for the sake of it but I understood and I am thankful!!
wow I just found out about your channel. The book we are using has a lot of complexity to it and makes learning at times super vague. You guys made it really easy. Thank you!
Shouldn't the social value curve (red line) have a steeper slope and eventually join the private value curve at the end because the last person in a population receiving a vaccine would not provide any social benefit?
Possibly a silly question, but if you subsidise by the external cost then won't you just balance a "societal deadweight loss" as shown in the video with a government induced deadweight loss? i.e. the triangle between the efficient equilibrium, old market equilbrium & where the blue demand curve crosses the dotted line near Q efficient. This subsidy, does it get divided in the same way as a normal subsidy with some going to producers and some to consumers? Is there not infact a new Pmarket where the Demand (private value) crosses the dotted line. Effetively this good here will become almost free.
How can it be more efficient for the consumer ? Because the new price will be a bit higher but will be subsidized to the inicial price right? So the consumer will still pay the same price as before? But with a higher quantity is doesnt seem logical.. Just my thoughts.
For simplification, assume the subsidy is costless or that it does not hurt consumers or producers (ignore that in the real world consumers and producers are also taxpayers who pay for the subsidy). In the diagram the last unit which gets produced is Qm. The Qm+1st unit of flu shot does not get produced because the benefit taken into account by that consumer is only the private benefit, which is smaller than the market price Pm. However, Pm is smaller than the total benefit of that flu shot, which means potential net gains are lost. This is why Pm is inefficient. The government then steps in with additional demand for the extra shot and distributes it to that consumer. Since the government pays the extra amount in price the consumer is not hurt. This extra demand shifts the curve outward and raises the price received by suppliers. This is efficient up to the point where social value is no longer greater than the price.
In the graph at 5:30, When we give subsidy, will the price paid by the consumer for the flu shots be P(efficient)- subsidy or P(market)-subsidy ?? Thanks for such informative video
Indian Government didn't use Pigouvian subsidy, what they did that they gave capital to Private Vaccine Manufacturers increasing the speed of production and bringing down the cost. And in return acquired vaccine from them at a lower rate(also using its monopolistic demand) which they used to vaccinate people for free.
