Benefits Accruing to People in the United Kingdom as a Result of Others Receiving Good Healthcare - Essay Example

PLANNING MY ECONOMICS Report Program This report looks at the concepts of merit good, demerit goods, negative and positive externalities. It details how these concepts are applicable in healthcare industry in the United Kingdom. It has been written to enlighten the reader on how the healthcare sector stands a chance in the face of government regulation or fail in the absence of the regulation; as a free-market. The report shows the manner in which government interference has held the health sector and the woes that the country would face in the event that these intervention methods stopped. It defines the merit and demerit goods, negative and positive externalities and gives examples of both. It then analyzes market failure and government control of the healthcare provision using economic theory. Concept of merit good was introduced in 1957 by Richard Musgrave (Corporate Loby- E-Company, 2014, p. 23). Merit good refers to the commodity that the society or an individual needs to have on the basis of a concept of need rather than the ability and willingness to pay. Although the term is less used today than it was in the 1960s, the concept still guides many governments in provision of services that do not target profitability. These include a number of commodities and services such as delivery of health services to reduce morbidity and improve quality of health, provision of food stamps to support healthy nutrition, affordable education and subsidized housing. On the other hand, demerit goods refer to the commodities whose consumption are considered unhealthy, socially undesirable and degrading due to perceived negative effects on the consumers of the commodities. The goods and services become over consumed if left to the forces of the market. Such goods and services include alcoholic beverages, tobacco, recreational drugs, prostitution and junk food. Given the effects of these goods and services, governments often levy heavy or some form of taxes on them (the tax is known as sin tax), bans or regulate advertisement of the commodities or regulate their consumption by use of policies and legislations (DuBois, 2009, p. 12). Externality in economics refers to the benefits or costs that affect a party that did not opt to incur that cost or benefit. Negative externality is also known as external diseconomy of external cost and refers to the action of a product on the consumers which exert negative effects on a third party. They occur when consumption or production of products impose external costs on a third party outside the market for whom no appropriate compensation is paid. They include the harmful effects of toxic, passive smoking on those who do not smoke external costs of food waste disposal, and air pollution from traffic congestion and road use and their impact on lungs (Jameson, 2007, p. 67). On the other hand, positive externalities refer to actions of a product on a consumer that exert positive effects on a third party. An example of positive externality is the benefit that accrues to neighbors of an individual who maintains an attractive and superior-image residential housing. He confers benefits to neighboring investors and house owners who may have increased market values for their houses. Additionally, a bee farmer confers positive externalities to surrounding crop farmers. His bees pollinate their crops and the resulting economic advantage for crop farmers could be bigger than what the bee-keeper gets from honey harvests. Healthcare provision is a primary need for every citizen of earth. Effective provision of healthcare services involves everyone from the largest healthcare provider to the patients. The scope of need for healthcare makes the service a commodity whose provision should not be pegged on the amount of resources one has (Rosenbloom & Trina, 2001, p. 9). Whereas some people have comprehensive healthcare plans with insurances and quick emergency response, others lack the resources to afford more basic commodities like food. This calls for the need to have a regulated healthcare system that protects the rights of the poor. Even for those who can afford healthcare, there is need to have bodies that maintain sanity and order in the sector. The role of the government to advance the interest of the society and care for its citizens includes delivery of high-quality care as well. Since the market alone has no capacity to ensure all citizens access quality healthcare. The government has the duty to preserve the interest of its citizens by regulating the healthcare market where there is unfairness or inefficiency as well as supplementing the market where there are gaps. The ultimate goal of achieving a sound and affordable healthcare system calls for a collaborative effort between the government and the private sector. The government must also place actions to ensure patient safety and reduce medial errors. Ensuring safety and reduced medical errors as well as affordability of healthcare to all citizens means that the government must be committed to undertaking some specific roles regarding healthcare provision. The government must support acquisition of new knowledge in the medical and healthcare sectors. It must also develop and evaluate novel healthcare technologies and practices (Kietzman, Hermkens, McCarthy, & Sylvester, 2009, p. 34). The government purchases healthcare and informs healthcare decision makers. It additionally regulates healthcare markets and develops the healthcare workforce. Finally, the government plays the crucial role of convening stakeholders from all healthcare systems and ensuring access of quality, affordable healthcare to vulnerable populations. Other than the government that owns a significant percentage of healthcare providers, the private sector comes in healthcare provision as profit seekers or charitable organizations. Private healthcare providers are profit seekers and view their health facilities as business entities. Like any other form of business organizations, their main aim is to reap the most possible profits. For this reason, their prices of services and medication are usually significantly higher than government facilities. Nonetheless, the government acknowledges the role that private health facilities play in supplementing the health market and regulated their pricing and operations to avoid client extortion. Healthcare provision is a service that confers immense external benefits. Accessing quality healthcare does not only benefit the person receiving the care, but spreads astounding benefits to the people around. A healthy society is a productive society. By one person accessing good healthcare, he becomes economically productive. One’s economic productivity is a relief to many as it reduces dependency rates. Economy of the country improves, per capita income becomes higher and standards of living become high for all citizens. Having a free market economy implies that the government will leave provision of essential services such as healthcare to the mercies of private enterprises (Corporate Loby- E-Company, 2014, p. 29). A free market would mean that the forces of demand and supply set the balance of costs of healthcare services. Since healthcare is a fundamental need that everyone needs, its demand is extraordinarily high. The demand and supply curves would shift equilibrium price to the right, a point that could be too high for a majority of UK citizens to afford. In a free market, no forces regulate the prices of commodities other than the forces of demand and supply. With lack of other forces such as government regulation, there would be an increase of price of accessing health to unimaginable heights. Regulation is, therefore, necessary to cushion the public against possibilities of raising costs of healthcare beyond reasonable levels. The situation would be a market failure as the poor would end up not getting their fundamental right of healthcare. Factors of production in free market economy are employed only if the investments are profitable to the organization. Investment in health technologies are usually expensive and time involving, a fact that could make the customer compensation for the product’s services excessively high. Therefore, free market will most likely stop providing the level of research and development the government currently invests in. In the event of failure in health service provision, the government has a number of ways to revive the healthcare sector. The first method of doing so is by the use of direct provisions. The government could implement policies that become a requirement of all healthcare providers to abide by. These policies and regulations impose certain economic terms that control the manner in which the private sector provides the health services (DuBois, 2009, p. 61). Additionally, the government could use grants and subsidies to health providers that may have been forced out of operation. As mentioned earlier, investment in research and development in the health sector can be very expensive. If left in the hands of private investors, it could put so much financial burden on some providers who may be forced out of market. In that case, the government could extend subsidies and offer financial grants to the health facilities. Command-and-control regulations could come as government-imposed standards, process requirements, targets or outright bans. These measures make certain behaviors in the health sector either required or forbidden with the aim of addressing externalities. Practically, effective implementation of regulations is quite a task. It requires the regulator to have an in-depth knowledge of the health industry and the economic factors that influence the sector. If done incorrectly, efforts to regulate could introduce inefficiency in the health sector (Jameson, 2007, p. 50). In the event that the government is not sure of the methods to employ in regulating the free market, it needs to seek alternative methods of mitigating the externalities. Advocates of the market-based policies for mitigating negative externalities fear the difficulty the government often faces in creating and enforcing efficient regulations. For this reason, there is an inclination to creation of systems of disincentives and incentives in place of force of regulation. From this discussion, it is evident that merit goods produce numerous positive externalities. Several benefits accrue to other people within the United Kingdom as a result of others receiving good healthcare. Other than economic development that benefits everyone from increased productivity of a healthy nation, the general population enjoys disease-free atmosphere that reduces spread of communicable maladies. To avoid such positive externalities in the health sector, the government must intervene to avoid market failure. Health provision is a service so crucial that it could be detrimental to the public to leave it in the hands of private institutions. Other than regulation, the government needs to try and focus on the use of incentives to make health provision more affordable and effective. References Corporate Loby- E-Company. (2014, February 14). Corporate Loby- E-Company. Investment in the Health Sector . London, London, United Kingdom. DuBois, W. E. (2009). business Externalities and its Journey to Globalization. Washington DC: Neptune Publishers. Jameson, D. A. (2007). Reconceptualizing Cultural Identity and Its Role in Intercultural Business Communication and Externalities. 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