Socially Desirable Merit Goods - Essay Example

Socially Desirable Merit Goods Grant and Vidler define merit goods as goods perceived to be socially desirable but are likely to be under-produced and under-consumed if left under the market forces (70). These goods exhibit certain characteristics that differentiate them from other goods. Economically, a merit good differs from other goods in the sense that its benefit is not certain at the time of consumption. Secondly, the benefit derived from the consumption of a merit good is usually greater than can be measured by the marketplace and are specific to the person receiving it according to Grant and Vidler (70). Merit goods are normally provided by the state because of the feeling that citizens tend to under-consume them, as well as the fact that they need to either be subsidized or provide freely to the people at the point of consumption so that its consumption is not tied to an individual’s ability to pay for the good. There are quite a number of merit goods that can be provided by the government namely health services, public libraries, education, inoculations for children, work training programmes, and Citizen's Advice Bureaux among others (Grant and Vidler 70). The National Health Services (NHS) is a good example of a merit good provided by the U.K. government. NHS is considered a merit good because the services received from the hospital confers personal benefit to the person receiving the services since there is personal satisfaction in becoming healthy or being healed of a disease. In addition, being healthy allows people to engage in development activities such as getting employment that enables one to earn a living and live a decent life (Grant and Vidler 70). This is because an individual cannot work when he or she is sick. Being healthy also has certain social benefits attached that prompted the establishment of NHS. Firstly, healthy people tend to be more productive than unhealthy people are in the workplace. Unhealthy people are normally not able to perform certain jobs because of their unhealthy status, thus making them less productive ((Riccardo and Tryphon 1367). Healthy people, on the other hand, can perform different jobs in an organization including jobs that require the use of a lot of energy. Furthermore, healthy people are able to work longer hours thereby improving productivity in an organization they work for. Economists agree that many organizations prefer productive workforce to unproductive workforce because it enhances economic growth that increases the national income (Grant and Vidler 70). This statement can be proved by comparing the GDP of countries where health care service provision is poor and those with good health care services like the U.K. In this regard, it can clearly be seen that the GDP of the U.K. is higher than that of developing countries in the word that are still struggle with the proving of quality health care services. Role of the government in providing this merit good to the public Grant and Vidler note that the government plays a big role as far as provision of merit goods is concerned (71). NHS is an example of a merit good that the government of the U.K. has provided for its citizens in order to increase access to health care services in the country. The government took this initiative for a number of reasons. Firstly, the government introduced the NHS for the U.K. citizens to ensure that there is universal health care in the country for all regardless of status. This is because the government felt that leaving the provision of health services solely to the private sectors would make it had for low-income earners, the old, and the disabled in the country to afford this valuable service. The reason being most private health care providers charge high prices for their services to the people and would only be affordable to the rich in the country. Therefore, the provision of this valuable merit good by the state is a means of promoting the consumption of merit good so as to achieve positive externalities attached to health care services and insurance schemes provide by the NHS as noted by Riccardo and Tryphon (1367). In this case, since the U.K. government feels that health care services provided by NHS has external benefits attached, everybody in the country should be able to afford quality health care services and insurance scheme through NHS. For instance, if a person is vaccinated in the hospital, this benefits both the person vaccinated as well as others in society since vaccination reduces the risk of epidemic disease from spreading in the country. From this angle, it can be seen that the benefit is to the entire society and not only to the person who receives direct services from the NHS hospital. At the same time, when one takes an insurance cover through NHS, such people will find it easy receiving treatments and other health benefits thereby reducing the burden of having to call in families and relatives to pay for medical bills that may be too high for some. The fact that the individual is covered under the health scheme is certainly a positive externality to the family members, as well as the community at large. This conclusion can be described using the personal marginal benefits (PMB) and marginal social benefit (SMB). Here, PMB is less than SMB, in a free market; welfare loss takes place as enumerated below: SMB PMB A SMB = PMB C B q1 q2 Q0= socially efficient level of usage ABC-loss of welfare due to underproduction Q1= free market equilibrium Grant and Vidler note that the government also provides merit goods as a means of overcoming the information failure associated with merit goods (71). For instance, many people in the U.K can afford to pay for health insurance cover, but are complacent and see the move as a waste of time/cash. This is because they feel that they are young, fit and healthy. As such, to them, there is no need of paying for insurance cover. However, when such people get accidents, they quickly see the need of getting an insurance cover, but find it too late to do so (Riccardo and Tryphon 1367). It is for this reason that the government of the U.K. took an initiative to introduce NHS as a merit good to provide health care services plus insurance scheme to everyone in the U.K. so as to overcome the information failure on the benefits of merit goods. Merit goods are also provided by the state on equity grounds according to Grant and Vidler (71). This is because merit goods are vital to everyone in the society regardless of status. For instance, everyone in the society is in need of a health care institution whether directly or indirectly. In fact, no country can do without a hospital. Nevertheless, private health providers tend to charge expensive fees on their services. This makes it hard for the poor, old and disabled in society lack this valuable service (Grant and Vidler 72). However, since everyone in society needs this good, the government usually comes in and provides this good to ensure that everybody consume this good regardless of their ability to pay for the good. With regard to health care service, the government of the U.K. established NHS to ensure that everybody in the U.K. receives quality and affordable health care services regardless of their status in society. Can the private sector provide this good (discuss). Certainly, a private sector can provide a merit good. This is because there are always both private education systems and some people private health insurance as noted by Eecke (702). The U.K., for instance, has several independent schools that are under the management of private investors. These schools also provide quality educational services that benefit both the student and the society. At the same time, quite a number of organizations that provide private health insurance scheme exist in the U.K. where wealthy citizens can get a cover. This private health and education institutions also work alongside state funded merit goods to ensure that the U.K. citizens get the quality and affordable education and health services. The positive externalities of your chosen merit good NHS generates a lot of positive externalities in the country. For instance, the fact that it gives everyone the opportunity to receive quality health care has helped in improving the country’s workforce (Grant and Vidler 72). This is because the it has made the U.K. workforce healthier, fitter, thereby reducing the number of time lost due to sickness, which, in turn, increases productivity and economic growth. For instance, the vaccination services provided at NHS reduces the chances of spread of epidermis diseases that indeed benefits not only the person being vaccinated, but also the entire society. Would there be market failure if the free market were left to provide this merit good? - discuss. Certainly, there will be a market failure if the free market were left to provide health services in the U.K. In this regard, free market will in the sense that it will lead to under-production of merit goods such as NHS in the country. At the same time, free market will fail because it will lead to under-consumption of merit goods because of lack of sufficient information among people as to the benefits of a merit good according to Grant and Vidler (72). Free markets may also fail in the sense that it can lead to unfair distribution of income and social exclusion because it denies the poor in society access to basic goods and opportunities essential for life (Grant and Vidler 73). Health care services are one the things that people need most in society. However, if its provision is left in a free market, then private investors will take advantage and charge high prices thereby denying the poor access to quality health care in society. This is why the U.K. government provided NHS to ensure that there is equity in health care service delivery, in the country. Work Cited Eecke, Ver W. Adam Smith and Musgrave's Concept of Merit Good. Journal of Socio-Economics, Vol.31, No.6, pp: 701-720. 2003. Grant, Susan & Vidler, Chris. Heinemann Economics AS and A2 for OCR. London: Heinemann. 2003 Print. Riccardo Fiorito, Tryphon Kollintzas. Public Goods, Merit Goods, and the Relation between Private and Government Consumption. European Economic Review, Vol.48, No.6, pp: 1367-1398. 2004. Read More