For each good listed below, discuss whether the good is likely to entail either an external cost or an external benefit. In addition, discuss whether the private market is likely to provide more or less than the socially optimal quantity of the good. a. Vaccinations b. cigarettesc. abtibiotics

Vaccinations : external benefit - the invention of a vaccine benefits a lot of people. It helps to cure for diseases and reduces the death rate in the society.

The private market is likely to produce less than the socially optimal quantity. This is because the cost associated with producing vaccinations are high and the private market would be unwilling to produce it as the aim of the private market would be to maximise profit.

 cigarettes : external cost

Smoking cigarettes produces smoke which is harmful to other people apart from the smoker. Those around the person smoking can inhale the smoke and this can adversely affect their health. This is known as second hand smoking.

The private market is likely to provide more than social optimal Quanitity. This is because there's little or no cost associated with smoking.

antibiotics :

External benefit - antibiotics creates external benefit. It helps to cure for diseases and reduces the death rate in the society. It also reduces the rate at which others can be infected.

The private market is likely to produce less than the socially optimal quantity. This is because the cost associated with producing antibiotics are high and the private market would be unwilling to produce it as the aim of the private market would be to maximise profit.

Explanation:

Postive externality is when the benefits of economic activities to third parties exceeds the costs.

Activities that generate positive externality are usually under produced in the economy. The government can encourage production of goods and services that generate positive externality by giving subsidies. This would reduce cost of production.

When the cost of economic activities to third parties is greater than the benefits. Activities that generate negative externality are over produced in the economy. The government can discourage activities that generates negative externality by taxation. Imposing tax increases cost and discourages such activities.

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