For each of the following policies explain whether the polic

For each of the following policies, explain whether the policy is correcting a market failure or pursuing some other societal goal. Be sure to identify the goal. Using diagrams where possible, describe the efficiency impact of the policy. To simplify your analysis, assume that the marginal private cost (MPC willingness-to-accept) is constant and ignore the efficiency costs of taxation (where applicable).

Solution

When the Canadian government made it illegal for health related transaction to occur, the societal goal was to ensure that there should be no market transaction for body organs. Selling and buying organs is considered illegal because it increases their prices exorbitantly. The demand for body organs is exceptionally high and if trading is allowed, there might be other detrimental effects of organ trading in hospitals mortuaries or even crematories. The government is not trying to correct any market failure because the market can exist for medical related transactions but the outcome of the market is regressive for the society.

When Healthcare is provided by the government the government is definitely trying to correct a market failure. Private insurance companies will not be able to provide Health Insurance to each and every individual because of variations in willingness to pay. The program is funded by the government through taxation which is ultimately paid for by the people. However the same will not occur if the insurance is provided privately because for a single insurance provider, catering to such a large population is not possible. Hence there will be a market failure if insurance is a left at private provision.