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7/29/2019 Policy Assignment- Externalities Grp Work
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EXTERNALITIES & ASYMMETRIC INFORMATIONGroup 1 Members: Reg. Numbers
Ainembabazi Patience J12B27/003
Otritia Angelo J12B27/609
Mary Badawi J12B27/110Kirunda Daniel J12B27/316
Nassejje Justine J12B27/505
Jackson Mwakapugi J12B27/291Jeniffer Makau J12B27/423
Umulissa Prossy J12B27/861
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HEALTHCARE MARKET VS. OTHER MARKETSHealthcare has distinctive features whichare; Uncertainty (irregular demand & uncertain)-
Externalities
- E.g. Cholera outbreak
Information problems- e.g. asymmetricinformation
Insurance
Restrictions on competition The role of equity and need
Government subsidies and publicprovision
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EXTERNALITIES Externalities-are third party effects arising from
production and consumption of goods andservices wherein the third party receives noappropriate compensation.
Externalities occur outside the market because
they affect third parties
that is agents withoutdirect involvement in the production andconsumption of a particular good or service.
In economics, an externality is an effect from oneactivity which has consequences for another
activity but is not reflected in market prices. Externalities can be either positive, when an
external benefit is generated, or negative, when anexternal cost is generated from a markettransaction.
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EXAMPLES Drugs and alcoholA York University study says heroin and
crack cocaine addiction costs the UK 19 billion a year, witheach addict costing 600 per week in crime costs and courttime, health care and unemployment benefits. Also, excessivedrinking is on the rise in the United States and the UK, costingmillions of dollars in health care costs and tens of thousandsof drinking-related deaths each year.
Drinking (alcohol) is also an issue in UG- 4th in the world
Individual behaviors (smoking, over eating) Direct impact on health of person and others
Impacts the cost of health premiumsi.e. lung cancer
Impact on demand for health care
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ASYMMETRIC INFORMATION Asymmetric information: This is a
situation where there is imperfectknowledge. In particular it occurs whereone party has different information toanother
Asymmetric informationWhen we are sick we dont understand the
treatment we need and must trust our doctor intheir diagnosis.
Different doctors may suggest differenttreatments due to uncertainty of outcome.
Hard to judge quality
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ASYMMETRIC INFORMATION IN FINANCIALMARKETSAsymmetric information is a problem in
financial markets such as borrowing andlending. In these markets the borrower has
much better information about his financial
state than the lender. The lender hasdifficulty knowing whether it is likely the
borrower will default e.g. in Banking
Not all information is told to the Borrower(hidden charges)
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ASYMMETRIC INFORMATION IN INSURANCE
People buy insurance to cover themselvesagainst many risks e.g. illnesses
Treatment recommendations are adjusted toinsurance status.
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REFERENCES
http://www.businessdictionary.com/definition/
externalities.html#ixzz2Lzgn9Xtt
http://www.economicshelp.org/dictionary/a/as
ymmetric-information.html
http://www.colorado.edu/ibs/hb/barham/cours
es/econ4646/
http://www.businessdictionary.com/definition/externalities.htmlhttp://www.businessdictionary.com/definition/externalities.htmlhttp://www.economicshelp.org/dictionary/a/asymmetric-information.htmlhttp://www.economicshelp.org/dictionary/a/asymmetric-information.htmlhttp://www.colorado.edu/ibs/hb/barham/courses/econ4646http://www.colorado.edu/ibs/hb/barham/courses/econ4646http://www.colorado.edu/ibs/hb/barham/courses/econ4646http://www.colorado.edu/ibs/hb/barham/courses/econ4646http://www.economicshelp.org/dictionary/a/asymmetric-information.htmlhttp://www.economicshelp.org/dictionary/a/asymmetric-information.htmlhttp://www.economicshelp.org/dictionary/a/asymmetric-information.htmlhttp://www.economicshelp.org/dictionary/a/asymmetric-information.htmlhttp://www.businessdictionary.com/definition/externalities.htmlhttp://www.businessdictionary.com/definition/externalities.htmlhttp://www.businessdictionary.com/definition/externalities.html