Planning My economics - Essay Example

Economics Module Introduction The merit good concept began in the 1960s and gained momentum in the 1980s through economist Musgrave Richard based on the need for acquiring a good rather than a buyer’s willingness to pay. Over the years, the concept has been less applicable as compared to prior times, but the term is still relevant in finances of governments because of economic actions that they undertake. Merit goods tend to benefit those affected and those affected by a situation because the consumer may be unaware of the ways in which the good may be of use or demerit to them. Merit goods include health care services, education systems, and training programs at the workplace in which citizens cannot contest them (Henderson 2011, p. 77). On the other hand, demerit goods are those perceived to cause negative effects to those that consume them because they are unhealthy and damaging to a person’s health. These goods attract high taxation as compared to merit goods, but their consumption remains high leading to overconsumption influenced by market forces. Some demerit goods include alcoholic drinks, recreational drugs and substances, tobacco and cigarettes, junk food, among a list of many others (Grant & Vidler 2004, p. 76). Positive externalities In the execution of this trading activity, demerit and merit goods attract either positive or negative externalities, which refers to the cost implications or the acquired benefits that may impact an interested party that no intention of incurring the resulting benefits or costs. Therefore, positive externalities may occur when the benefits from a transaction spill over to a third party while negative externalities may result when costs spill over to a third party that did not intend to incur them.(Mankiw 2012, p. 199). Pollution can be a good illustration of a negative externality as a manufacturing company may produce goods at the expense of the population living in its surroundings without necessarily sharing the benefits acquired. On the other hand, when an individual or society sees value in educating their children then this becomes a positive externality as this would spill over to aspects such as the election of integral leaders to hold public offices among a list of other leadership posts. Other than this, this helps this society to have high living standards because the level of income would also be desirable because of their income levels. With this, this report will illustrate the merit goods healthcare services as the socially desirable by showing their benefits despite them being applicable to all. The focus will also be on the provision of healthcare services as a merit good because of its ability to improve the living standards of a population. Ideally, the application of merit goods by a government such as health care services delivery is sole to influence the generation of positive externalities because the benefits acquired socially override the private benefits. In this regard, the state has the obligation of ensuring that the population maximizes the consumption of merit goods that it may perceive to be desirable, which is a way of protecting the interests of the society. The implication of this is that at times the government or state agencies find themselves lacking alternatives to enforce the consumption of these health services, which at times calls for their forceful intervention. In the end, governments end up spending more on health services as a merit good, which in turn has a high likelihood of ensuring that a population remains healthy and also influences an improvement on overall economic welfare. Other than this, the state may also opt to introduce subsidies as a way of combating the private consumption costs that may cause an expansion to the demand rate. Issues that may arise from health services delivery by the private sector In many instances, the provision of services through the state makes it affordable to all because the cost implications passed on to the third party that is the citizen tends to be minimal or may be at no cost. However, if the focus was to shift to the private sector is the sole provider of these healthcare services then much of the operational cost that they may incur passes on to the consumer making them unattainable to a large fraction of the population. The implication of this would be that health services which are a necessity may become a luxury to the poor, which will, in turn, translate to a significant part of the population being unhealthy and not able to contribute to the economic welfare of the society. In the event that the private sector takes the responsibility of providing health services, their focus would be on generating and maximizing profits rather than ensuring that the population remains healthy. In many cases, immunization services offered by private health facilities may not be adequate to the whole population because of the cost restraints that they may have on their resources hence rendering their delivery channel to be ineffective. However, this does not mean that the private and public sector cannot collaborate in the delivery of these health services as their concerted efforts may help in reaching a wider portion of the population. Positive externalities using the economic theory of health services delivery by the government Essentially, the government provides merit goods such as health services to the population for free at the point of delivery, but the cost implications incurred spill over to the third party through general taxation. This aspect tends to attract intense positive externalities as this allows the population to access the basic health care services at affordable costs meaning that they can continue to contribute on the economic welfare of the society that they live and work in. Ideally, a population that spends much of its earnings and time on accessing health services may not contribute positively to economic prosperity as they become preoccupied with treatment matters. Further, the provision of healthcare services through the state helps in reducing inequalities, which in turn fosters a healthy working and living environment. Therefore, the state provided health care delivery as merit goods and services helps in developing positive externalities for the consumers as the social benefits accrued supersede the private benefits. How market failure may occur if the free market were to provide health care services The most basic element that may lead to market failure in the delivery of health services is the provision of inaccurate information by healthcare practitioners and consultants to the consumers by taking advantage of their wealth in knowledge. This implies that the asymmetrical delivery of information from these two stakeholders may lead to market failure as the broken communication channels may influence the arrival at uninformed health decisions (Sloman & Wride 2009, p. 322). On the other hand, the population’s lack of comprehensive insurance plans may also lead to market failure in healthcare provision as this may attract hefty medical debts that may worsen their economic standing. A majority of those in the high-risk bracket of the population may find it expensive to access health insurance provided by private insurance providers, which creates ‘missing markets'. Lastly, a significant part of the population depends on the National Health Services as their sole provider of healthcare services as a majority of the working population depends on private insurance provided by their employers. This would create market failure because if they could not afford to take up private insurance then this would make healthcare access to be unattainable to a significant part of the population. Ways in which the state may regulate possible market failure One of the possible ways of controlling possible market failure that may result from healthcare delivery can be through the application of the health rationing policy within a free market. Ideally, health rationing refers to a situation where the demand level supersedes the supply rate in the delivery of healthcare (Finkler, Kovner & Jones 2007, p. 63). As much as a government may attempt to meet the health demands of its population through the injection of adequate resources, fulfilling them may not be attainable. This becomes harder because most of the services offered through government channels are at no cost hence making it harder to fulfill the fundamental principles embedded in the National Health Systems. Using this as the basis, the government may allow the involvement of the private sector in meeting these needs with the overall objective being the maintenance of a healthy population that is likely to generate positive externalities. Conclusions and recommendations As documented above, the intervention of the government in ensuring that its population remains healthy is vital to policy development and providing the required infrastructural support. On one hand, merit goods tend to influence positive externalities such as having a healthy population that would propel an economy, but it may also influence market failure. The market failure may result from the lack of reliable health insurance options that may lead to medical debts that may puncture a functional economy. Government intervention may be a possible intervention strategy, but it should have the interest of the population at the center by communicating the benefits and the risks of the strategies that it chooses to implement on its citizens. As a recommendation, the government should use citizens involvement in choosing the appropriate merit goods or services that best suit them rather than applying a uniform approach to health services delivery. Bibliography Finkler, SA, Kovner, CT & Jones CB 2007, Financial Management for Nurse Managers and Executives. Maryland Heights, Philadelphia, Elsevier Health Sciences. Grant, S & Vidler, C 2004, Heinemann economics for OCR. Oxford, Heinemann Educational. Henderson, J 2011, Health economics, and policy. Mason, Ohio, South-Western. Mankiw, NG 2012, Principles of microeconomics. Mason, OH, South-Western Cengage Learning. Sloman, J & Wride, A, 2009. Economics. Harlow, Financial Times Prentice Hall. Read More