Merit Goods and Market Failure - Essay Example

Merit Goods Introduction This dis delves into the value of the government supplying merit goods to the public. By identifying an example of a public good offered by the government, the paper discusses positive externalities derived from merit goods. Scholars define merit goods and services as those that the government considers that citizens may consume less therefore; it has the responsibility of subsiding or in other circumstances offering the for free to make sure that consumption of the same does not entirely depend on paying for them. This means that people do not haveset aside part of their disposable income to spend on the same. However, both the private and government sector can provide merit goods and services. The government in the United Kingdom provides an independent system of education but private schools exist where citizens can take their children to learn. Discussion Positive externalities result when people consume merit goods. In this case, social benefits arising from their consumption exceeds the benefit derived from the private sector. The society puts much value to a merit good. In the process, they conclude that a person must receive the good and service irrespective of his or her ability to pay.By providing these services, the government of the United Kingdom takes the responsibility of a parent. Imperfect information in the market makes it difficult for a common citizen to act independently on the products. When prices do not capture production costs fully, production, consumption, as well as decisions on investment touching firms and households do influence outside the direct line of transactions. These effects become a problem when they are large (Cornes, & Sandler, 1986, p. 123). Economists refer to these effects as externalities and force the government to step into the economic sphere. The need or merit of goods and services determines the distribution of merit goods as opposed to other goods based on the price system. This is because even if people have the right information about them, they are likely to purchase them in wrong quantities. The free market may have the capacity to distribute the goods and services but affect their quantities for the benefit of the supplier and at the expense of the consumer. Merit goods are public in the sense that economists define them as goods and services where, additional use does not affect the quantity consumed by clients irrespective of the quantity of output. Public goods are few with parks, legal services, defense, as well as street lighting serving as notable examples. Economists argue that the government must provide such goods and services free because there do not have marginal cost incurred their production. Failure in providing the same will lead to those who consume less of those goods and services failing to use them. Such a step influences welfare of the people negatively. Charging use of such goods results in free riding because they are non-excludable. The state must provide these goods because what the free market offers is chargeable. Types of externalities Most externalities as defined economist fall into the technical arena. They constitute effects by indirect influences on production and consumption of opportunities of other people where product prices do not consider the externalities. This results into the differences between costs or returns on the entire society and costs or returns on the private sector. Traditional, the society picks pollution as an example of a negative externality. Education on the other hand, leads to positive externality. The differences between private and social gains lean towards the social side. Both the public and the government expect education to influence research and development positively. Impact of research goes beyond the research and various generations down the line. In this case, the company or learning institutions carrying out the research as well as those providing the funds do not even enjoy much but the entire present and future population. Studies in various disciplines, a product of education contributes to the world body of knowledge resulting in other related and unrelated developments and discoveries. Returns enjoyed by the private sector following the sale of products of their discoveries are not equal to benefits enjoyed by the consumer of such products and information. This explains why positive returns for the private sector are few compared to social returns when the economy or sector enjoys positive externalities. Education Imperfect knowledge becomes an important aspect in this case because guardians and parents not comprehend fully the benefits children and those attending school may get on long-term basis. Education is a long-term investment decision parents need to consider before making a choice over the type of school. Parents incur private costs now but private benefits emerge later. They include among others higher earnings later in life resulting from a person working his or her entire life. Externalities expected from education include increasing productivity and rising incomes covering future and current generations(Pigou, 1920, p. 79). This reduces unemployment and increases occupational mobility. Since people spend a lot on education, it is should catalyze an environment that facilitates research at higher levels. Research should in turn contribute to long-run trends in the rate of growth for the economy. Furthermore, education should foster an enlightened and industrious society and develop a culture of learning. Training programs, a product of education should enhance equality for people creating equal chances because the system does not discriminate based on gender, race, age, and religion. Education constitutes merit goods that the free marketcan offer but entail serious drawbacks when the private sector provides.Complexity in this case, refersnot to the ability of people buying the goods but to the quantity that the consumers will get. People will stop engaging insigning up for expensive education insurance because they cannot afford but because of the notion that nothing will happen to them. However, when a problem arises, they fail to meet the costs. Ultimately,the country will have uneven distribution of income allowing the rich to access quality but expensive education and medical care but the poorcontinue to remain inpoverty. If the government lets the private sector provide merit goods and services, only the rich will afford and access. The government of United Kingdom feels that education carries external benefits just like in other governments therefore all people must access them. Investment in human capital for instance, influences the growth of the economy as well as the overall growth of people positively while carrying out vaccination of people or children say against polio and measles reduces the chances of epidemic diseases and in the process the nation benefits by having a health working population (Samuelson, 1955, p. 353). Education take care of the supply side of labor in the market of any country.The social marginal benefits as well as the personal marginal benefits explain the understanding of the value of merit goods well. When the social marginal benefits exceed the personal marginal benefits, then the free market loss will take place. Providing education is an expensive venture that requires heavy investment in terms of time, energy, and money. This is because in both cases fixed costs are high. This means that prospects of having large levels of economies of scale are high. Logic from the United Kingdom government is that such important services should not be a responsibility of the private sector entirely. Therefore, provision by the government will make the goods and services the cheapest option. Research shows that bigger classes are easier to maintain and do not affect the quality of education. The United Kingdom has the best record inefficiency quantified in terms of costs spend per person when compared to other countries in the developed regions. Although life expectancy in these regions remains the same, actions towards taking care and handling other diseases among them,breast cancer is slow the same way life expectancy is not raising fast enough.The government also has the responsibility of taking care of the education sector by putting up more high-level learning institutions such as universities when the population of students sitting A-level examinations increases. These are long-term population trends within the education sector.The government also understands the value of having uniform standards within the education sector. Life becomes easier for recruitment agencies as well as other employers. Comparison of people seeking employment becomes easierwhen they are products of the same training and education systems. This explains why the government has the National Curriculum to take of the indifference that would otherwise arise. The government spends ten percent of its national budget as allocated by the exchequer to education matters. It is also law that employees should spend ten percent of their first tax band to remit to the socialsecurity payments. It is logical that the government does not have thecapacity to provide all the quality and expensive services to everybody satisfactorily. If the effects of particular goods and services are not big, then the government lets every citizen pay for them. When compared, the private sector is more efficient in terms of service provision than the government because the profitmotive drives it into business. Conclusion The government takes the initiative to provide merit goods and services because of various reasons. First, the government aims at encouraging the consumption to catalyze attainment of positive externalities following consumption of the sameproducts. This includes among other benefits protecting the society against infectious diseases. Secondly, the government fights ignorance by having people get more information regarding the specific goods and services in question. This includes goods and services that consumers can afford but the private sector can interfere with appropriate quantity. The government considers equity the third aspect of providing merit goods. It is common knowledge that the government of the United Kingdom believes that the ability to pay should not be the only determinant of consumption of all goods and services. Bibliography Coase, Ronald, 1960. The Problem of Social Cost. Journal of Law and Economics, Vol. 3(1), pp. 1-44. Cornes, Richard, & Todd Sandler, (1986).The Theory of Externalities, Public Goods, & Club Goods. Cambridge: Cambridge University Press. Pigou, Arthur, 1920. The Economics of Welfare. London: McMillan Publishers. Samuelson, Paul, 1955. Diagrammatic Exposition of a Theory of Public Expenditure. The Review of Economics and Statistics, Vol 37(4), pp. 350-356. Read More