Activity 12(d)

1.  Vaccines produced positive externalities because third parties (e.g. those not vaccinated) will also enjoy the benefits that vaccinations provide to the vaccinated. In other words, those parties not part of the original transaction between the pharmaceutical company and the vaccination recipient will also benefit from the transaction in which they had no part.

2. Without government intervention, there would be an underinvestment in research and development into vaccines, such as COVID-19 vaccines. This is because the third party benefits (or social benefits) cannol be captured by the company engaging in the research and development and the government needs to step in and provide incentives {e.g. funding) designed to increase investment in the activity.

3. As noted in the piece, un effective vaccine will help lo preserve Australia’s labour force and aggregate supply by ensuring workplaces (such as those in the hospitality sector) and schools can remain open, and that industries can continue to operate. In addition, it will reduce the cost of production of some workplaces, as they will be able to manage more production without the kind ot ‘Covidsate’ restrictions in place during most at 2020 and minimise the workplace disruptions (and associated falls in productivity) that would exist in the absence of a vaccine.

4. Following on trom the response provided to question 3 above, the reductions in the cost of production that are likely to occur following improvements to productivity will necessarily mean that productive efficiency increases because the nation’s output can be produced at lower average costs of production. Allocative efficiency will also improve because the vaccines will not only save lives but will also help to ensure that the nation’s resources can continue to be used in combinations that yield the maximum satistaction tor society (e.g. labour can continue to be employed in the production at goods and services that society desires)

5. Following on from the responses provided to questions 3 and 4, to the extent that the vaccines help to increase productivity and contribute to productive efficiency, it leads to lower average costs of production than would otherwise exist, which reduces inflation, increasing international competitiveness and therefore leading to a stronger rate of economic growth. Given that this increase in the production of goods and services occurs in a low inflation environment it therefore means that economic growth becomes more sustainable (ie it can continue without fear of inflation becoming excessive which tends Lo derail growth).

Building the submarine, which adds to government expenses and exerts upward pressure on the budget deficit as well as adding to the costs of production for other industries (as business taxes might be higher than otherwise and the cost of other resources, including labour, are bidded up. It also runs the risk that Australian producers will be disadvantaged in the future in the event that future overseas export contracts are put at risk by foreign governments seeking to protect their local industries (e.g. a form of retaliation). It further exposes the government to continuing calls for assistance from other Australian industries citing its support for the defence industry as a precedent.

6. It can help to improve allocative and inter-termporal efficiency to the extent that support for renewable energy producers leads to fewer resources allocated to carbon intensive production methods. Given that this is likely to reduce carbonemissions and therefore help to reduce the rate of climate change, it leads to a more inter-temporally efficient allocation of Australia’s resource.