Imagine an island economy that is periodically struck by an epidemic disease that
affects only children. From past experience the islanders found that the disease strikes
randomly, affecting 80% of all children. They also discovered a preventive antidote that
reduces the chance of death if it is taken before the disease strikes.
A child who has taken no doses of the antidote has a 90% chance of dying when
he or she contracts the disease. With one dose of the antidote, the chance of death is
reduced to 10%. Two doses reduce the chance of 8%; three doses reduce the chance to
6%; four doses reduce the chance to 5%. Beyond four doses, the antidote has no further
effect and the chance of death remains at 5%.
Suppose the island has 1,000 children and that the first sign of a new outbreak of
the dreaded disease, the people have produced 1,000 doses of the antidote. The antidote
must be used immediately if the children’s lives are to be saved.
Discuss the following in this week’s journal entry:
What is the (laissez faire) market solution to the problem?
What is the central planning solution to the problem?
What is your solution to the problem?
You will be graded on your understanding of the solutions and their application to the problem.