Industrial Sickness Primary and Secondary

Garry Pursell The subsidising and continued production of marginal firms which would normally leave the industry ('primary sickness') further depresses price and leads to losses and the subsidising of a further set of firms ('secondary sickness') which would have been profitable had the first set been allowed to leave. The total 'sickness effect', consisting of the primary plus the secondary sickness effects, is shown to depend on the elasticities of demand and supply. The economic welfare consequences of this case are discussed.