Merit Goods, London Underground - Essay Example

Running head: LONDON UNDERGROUND 20th March Introduction Merit goods are goods that are provided to the citizens by the government regardless of whether the public is able to pay for them or not. One of the major characteristic of merit goods is that during consumption, the net private benefit of the good is not entirely recognized. For example, in London Underground which is one the merit goods provided by the government and private sector, the students may not be aware of the benefits that they will experience after arriving on time at their universities or college. Another notable characteristic of merit good is that just like for the individual beneficiaries, the external benefits experienced by the society after consumption are not easily recognized. In its effort to serve the UK residents, the UK government provides various merit goods including London Underground and health as well as London underground. This paper aims at discussing London Underground as one of the merit goods that are enjoyed by the residents of the United Kingdom. London Underground is an important metro system that serves residents of UK. Serving more than 270 stations, London Underground was originally operated by various companies including City and South London Railway and Electric traction trains. The vision of London Underground is to deliver a state of art world-class underground globally (Hardy, 2002). Also referred to as Tube, London Underground obtains its revenue mostly from the large number of massagers it serves in the UK. One of the major reasons as to why large number of passengers uses the Tube is due to its convenience as well as the high speed that it adopts. According to the Tube management, safety and reliability cannot result to world-class transport system even though they are the base of good service. As a result, London Underground believes that quality of travelling is the most vital aspect to passengers. One of the major challenges facing London Underground is keeping the city of London on the move while the Tube is being transformed. As the demand for the use of London Underground rise, it has resulted to expansive investment in order to improve its revenue and provide world class services. The success of Tube is based on its efforts to put the experience of its passengers at the central position of its strategies. For example, the organization maintains helpful and always available staff, adequate security systems and high-quality information. During their travelling, most of the passengers using the Tube use Oysters. An Oyster is smartcard that is plastic in nature that passengers can use in place of paper tickets. Being used in various places including national rail, Tube, London Overground and on bus among other areas, Oyster is cheapest method of payment. In UK, private sector can provide London Underground as a merit good. As part of the global trend, the private sector in UK makes significant contribution in providing transport services to the UK residents. UK parents have high preference for Tube based on their ability to pay the transport fees and the speed of the Tube (Amartya, 1982). Just like the UK government aims at providing unique and world class transport services to its residents and foreign visitors, the private sector has high interest to provide transport services. As the demand for transport services increases, the UK government has allowed more investors to start investing in transport services across the country. Positive externalities entail the actions of a service or a product on the consumers resulting to positive implications on the third party. As a merit good in UK, London Underground, a major transport system that carries more than one billion passengers on annual basis, has sustainable implications on the UK economical, political and social aspects. One of the notable positive externalities of London Underground is that it results to improved economic productivity. Through the Tube, individuals are able to attend colleges and universities thus ensuring that they are provided with skills that makes them to be innovative thus increasing the number of goods and services in the UK economy. Another externality is reduction of rate of unemployment. This is based on the fact that London Underground acts as one of the key sources of employment. Another positive externality that is generated by London Underground is the provision of emergency services. Based on the high usage of the Tube by professionals in medical, electric, mechanical and production among other fields that require immediate attention, London Underground ensures that emergency cases are addressed on a timely manner. In this way, cases of stopped production due to machine failure, deaths, fire due to electrical faults are reduced. Hiking of land value is an additional positive externality that is associated with London Underground. As the result of the rising value of the land close to the Tube, the land owners who wish to sell their assets or lands have an opportunity of higher returns. London Underground also has resulted to emergence of agglomeration benefits as a positive externality. Agglomeration benefits refer to the gains that companies experience when they are located near each other. Based on the linkage that the Tube has created among various firms in the city of London, the companies are able to enjoy economies of scale. This implies that firms located near to each other may reduce their cost of production due to the competition that exists among the multiple suppliers. Likewise, firma that are closely located are not only in a position to share labor but also more suppliers and customers are attracted in the area resulting to increased sales and profits. The income earned by the London Underground employees and the company itself is invested in various areas such as construction of rental buildings, industries and private schools among other sectors of the economy. Thus, other parties have an opportunity to benefit from those investments including getting employment, rooms for renting and offices among other benefits. If free market is left to provide London Underground as a merit good, there would be a market failure. Taking into consideration the importance of London Underground in UK economy, the role of government in the sector cannot be overlooked. In a free market, there is no or less government intervention. London Underground is an initiative that requires a lot of funds from the government in order to ensure that it provides first class transport services. This implies that government should be included in provision of London Underground as a merit good in order to provide the financial assistance needed in the service. If left on the control of a free market, London Underground would also not provide adequate and quality services as compared to when it is monitored by the government. This is based on the fact that in most cases, free market is focused at the profits and quantity rather than the quality of the services and goods. As the result of low quality of services, the Tube may create a poor customer trust resulting to low sales. Low level of technology is another failure that may arise if Tube is left to be provided by a free market. London Underground Limited operates 270 stations and 11 lines. This implies that the company needs high technology to ensure strong linkage among the stations and lines. Such technology can only be provided if adequate resources are available. The government role in the London Underground is to provide funds to assist in innovation and development of modern technology. Under consumption of Tube services is an additional notable market failure that may be experienced in the case its services are left on hands of free market. This may due to poor marketing strategies that may make the customer not to be aware of the benefits experienced out of using London Underground services. Similarly, the free market may increase the prices of the services to a point where a significant number of consumers become unable to use its services. Conclusion From the above discussion, it is clear that for a public to benefit from its government, the government should be engaged in provision of various merit goods. Consumers are in most cases faced with financial constraints regardless of whether they are willing to consume a particular product or not. In UK, London Underground and health are key merit goods that cannot be overlooked. As discussed above, the UK government has done a lot to maintain an effective and competent transport services that many countries should emulate. Key positive externalities by London Underground are improved economic productivity, provision of emergency services, increase in land and reduction of rate of unemployment. If the services of London Underground are left to be provided by free market, there may arise various market failures such as inadequate and poor quality services, low level of technology and under consumption among others. Tube Based on the high demand for public transport, the UK government has given adequate support to the London Underground in order to ensure that it provides adequate and first class services to the members of the public. On their part, the public extensively use the services of the Tube an aspect that makes it to generate significant amount of revenue. References Amartya, S. 1982. Rational Fools: A Critique of the Behavioral Foundations of Economic Theory in Choice Welfare and Measurement, 4 (2) pp35-41. Hardy, B. 2002. London Underground Rolling Stock. Harrow Weald: Capital Transport. Read More