The Market for Education: Museums - Coursework Example

THE MARKET FOR EDUCATION: MUSEUMS Research Paper [Pick the Table of Contents INTRODUCTION 3 MUSEUM MARKET 3 DEMOGRAPOHIC DEMAND PATTERN FOR MUSEUMS 5 SHIFT IN DEMAND AND SUPPLY 5 ELASTICITY 5 MARKET FAILURES 6 GOVERNMENT INTERVENTION 7 AFFECT OF INTERVENTION ON DEMAND 7 RECOMMENDATIONS 8 BIBLIOGRAPHY 10 INTRODUCTION ‘All the beautiful things in life are for free’, these words might be clichéd but they carry abysmal meaning to them. Free things might include natural gifts such as landscapes, waterfalls or a serene view by a window. In today’s economic market, “free things” generally refer to goods and services. Over the past few years, some countries have adopted a government policy of providing free entry to certain state sponsored museums. This policy has been subjected to debate, primarily because of the added burden that it puts on a state’s expenditure. One of the most well-known cases is that of the United Kingdom. The government of The United Kingdom decided to allow free entry into museums, which were sponsored by the government, back in 2001. This initiative was adopted as a government policy to widen the access to the cultural assets that the country possesses, so that general masses can also be benefitted and be allowed to explore the world of art, history and heritage. This policy has been subjected to argument and has been considered for revision. When this policy was adopted, the number of visitors shot up because people who previously fell within the ‘price sensitive segment’, were now able to visit museums (Youngs, 2011). France had also implemented a similar policy but failed to maintain it. Free entrance was discontinued after six months (Dowd, 2011). Policy makers, especially in the cultural sector, face a grave issue in this regard. They are faced with contradicting effects of free admission when well-known cases are studied in depth. That is why it is important to understand how museums, as an institution, affect an economy. MUSEUM MARKET The developed models and theories of economics can be used to explain the behaviour of an individual who are considering a museum visit. According to economic theories, a visitor behaves like a well-informed consumer who opts for those goods which have the highest utility for him, keeping in mind his disposable income. Economics has developed various theories revolving around the basic market forces, namely demand and supply. The most prevalent theory states that when a price of good falls, the demand for that good increases and the supply decreases. This implies that supply is directly proportional with the price of the goods, and demand is inversely proportional. This relationship proves that the interchange of demand and supply sets prices in a market. This concept is referred to as ‘price mechanism’. In a free price mechanism system, supply is rationed and also income and resources are distributed and allocated. This differs from the ‘fixed price system’, where the prices are set by the government in a competitive market. For a market to work efficiently, all the economic agents must respond to the price signals, else market failure occurs. This leads to economic as well as social loss. Price plays an important role in bringing the market towards ‘equilibrium’, which is a situation in which demand and supply balance each other. Michael Parkin explains that this becomes possible because ‘price regulates buying and selling plans’ (Parkin, 2004; 68) and also ‘price adjusts when plans do not match’ (Parkin, 2004; 68). The price at which the quantity demanded is equal to quantity supplied is referred to as the ‘equilibrium price’ and the corresponding quantity in such a situation is called the ‘equilibrium quantity’ (Parkin, 2004). This market can be explained with the example of museum visits. If the government announces free admission, the demand would increase dramatically. This signals an incentive to all the potential visitors. This situation can be positively maintained if museums continue to supply the services, which would ultimately result in balancing out the forces and result in equilibrium. DEMOGRAPOHIC DEMAND PATTERN FOR MUSEUMS Generally, certain segments of population tend to visit museums more often than others. In terms of demographics, older people are attracted more towards art and history museums while the younger generation is inclined towards science museums. Also, individuals belonging to upper socio-economic class are frequent visitors, as they can afford the price and usually come from educated backgrounds (McIntyre, 2007). Psychographics play a role in this regard. People who have a proclivity to explore arts, history and culture usually visit museums. SHIFT IN DEMAND AND SUPPLY An economic market is never stagnant. Certain determinants may cause a shift in demand as well as in supply. If the demand for substitute products such as cinemas or amusement parks increases, then demand for museums will fall. Similarly, if the opportunity cost of visiting a museum is too high than the demand is more likely to plunge. The stage in economic cycle is also a determinant. In recession, people would be more careful with their spending and would not want to pay entry fees but, during an economic boom people are more willing to spend their capital; so charging entry fees would be suitable. If the demand increases, the graph will shift to right and vice versa. In case of supply, unforeseen events can be a determinant to cause a shift. Critical law and order situation, poor weather, terrorist threats; all can cause hindrances in supplying services. ELASTICITY It is imperative that when price is being considered, elasticity should also be taken into account. If the demand is inelastic then an increase in price would result in attracting a larger crowd and revenues would increase. If the demand is elastic, then an increase in price would result in decreasing the total revenue of the museum. For people belonging to lower socio-economic groups and who are price sensitive, the demand would be elastic. They would be motivated to visit museums if it is for free. While evaluating the cross price elasticity of the museum visits, I would compare it with cinema. It is a substitute for museum, as both of them are leisure activities. If the price of museum entry fees increases, the demand for cinema would increase likely. This shows that the cross price elasticity between the two substitutes is positive. Another important dimension is income elasticity. Museums can be considered as ‘normal goods’. These goods have positive income elasticity, when the consumer’s income increases. While considering free entry in museums, it is most likely that the income elasticity would not be affected. Visitors would not have to spend their money if the entry is free; this would increase the demand for museums as compare to its substitutes. MARKET FAILURES It is of utmost importance to bear in mind that demand and supply forces might not always balance off and market failure can also occur. This happens when the market becomes inefficient. Museums fall in the category of ‘merit good’ which is prone to produce positive externalities in case of market failure. It can affect the following; Education: Where the visitors know that visiting is beneficial for their own selves. Consumption: This leads to larger consumption of the services by the masses. Networking: This provides cultural associations with other museums. Existence value: This appears when people never plan to visit a museum but benefit from knowing that a museum is established. (Frey & Meier, 2006) On the other hand, it can also produce negative externalities such as noise or pollution, which is inflicted in the nearby areas surrounding the location of the museum. Museums are mainly considered as a merit good because they are under-consumed by the masses and its social benefits are not entirely considered. It is commonly observed, that our younger generation would prefer to watch a movie or visit an amusement park instead of visiting a museum. GOVERNMENT INTERVENTION While considering the possible market failures, it is of utmost importance that viable options for government intervention should be devised. In case of positive externalities, government can intervene in the following ways; By providing financial support Through legislation Free admission to museums. By enforcing educational campaigns and creating awareness through advertisement. By imposing taxes or penalties to target negative externalities AFFECT OF INTERVENTION ON DEMAND All these intervention techniques can affect the museum visits rigorously. This can lead to increased demand for museums, because a government subsidy would reduce the cost of consumption. Educational campaigns and promotions are also more likely to increase the demand. On the other hand, intervention through negative externalities can significantly reduce demand, because it would increase the cost of consumption. Certain limitations are also present to government intervention. These limitations include; over all culture in the society, the dominant political system of the country, preferences and fashion trends, excessive criticism and pressure by media and sources. All these factors act as constraints which makes it difficult to settle on a decision and carry it out. RECOMMENDATIONS This report explains the functioning of museums market and also discusses the advantages and consequences of adopting the policy of free entry in museums. It covers demand and supply in museum market and how elasticity affects pricing. It also identifies potential market failures and government intervention techniques to address them. A government should adopt the policy of free entry in specific museums, so that the general masses also have an access to the cultural heritage of the country and can benefit from it. I have the following recommendations; Firstly, the museums should charge for exhibitions. This would give an opportunity to raise some capital Secondly, differential pricing can be adopted in which different segments of the population are subjected to different prices. For instance, free admission should be allowed for elderly people during summer months, when demand from schools is low. Or in order to motivate the younger generation, admission should be free up to a certain age or during specific days. Thirdly, donations can also be sought from people who are willing to pay. BIBLIOGRAPHY Dowd, V. (2011). Museum Entry Fees: How the UK Compares. Available: http://www.bbc.co.uk/news/entertainment-arts-15982797 Last accessed 13 November 2013. Frey, B. S., & Meier, S. (2006). The economics of museums. Handbook of the Economics of Art and Culture, 1, 1017-1047. McIntyre, M. H. (2007). Audience Knowledge Digest: Why People Visit Museums And Galleries, And What Can Be Done To Attract Them. Retrieved from http://webarchive.nationalarchives.gov.uk/20120215211132/research.mla.gov.uk/evidence/documents/audience%20knowledge%20digest.pdf Last accessed 13 November 2013. Parkin, M. (2004). Microeconomics. Boston, Mass. [u.a.: Addison-Wesley. Youngs, I. (2011). Museums Enjoy 10 Years of Freedom. Available: http://www.bbc.co.uk/news/entertainment-arts-15927593 Last accessed 13th November 2013. Read More