The Hong Kong Hospital Authority subsidizes healthcare. Comment on the economic efficiency of such subsidies.

Question

Quizplus · Accepted Answer

Subsidies lower the price of healthcare for consumers, leading to an increase in demand. This can result in excess demand as more people seek healthcare at the lower price. At the market equilibrium with subsidies, the marginal benefit to consumers is greater than the marginal cost of providing the service, as the true cost is not fully borne by the consumer. This can lead to a situation where the marginal cost to the economy (including the subsidy) is higher than it would be without subsidies, reflecting inefficiency.

The Hong Kong Hospital Authority Subsidizes Healthcare