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Unit 1 Micro: Differences between Merit and Public Goods

Saturday, May 12, 2012
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Here is a brief summary of the “textbook” differences between merit goods and public goods

Merit Goods

* Provided by both the public and private sector
* Positive marginal cost to supply to extra users
* Limited in supply – may be a high opportunity cost
* Rival – consumption reduces availability for others
* Excludable
* Rejectable by those unwilling to pay

Merit goods are those goods and services that the government feels that people will under-consume, and which ought to be subsidised or provided free at the point of use so that consumption does not depend primarily on the ability to pay for the good or service

Why does the government provide merit goods and services?

• To encourage consumption so that positive externalities of merit goods can be achieved for example free inoculation against infectious diseases
• To overcome the information failures linked to merit goods
• On grounds of equity – because the government believes that consumption should not be based solely on the grounds of ability to pay for a good or service


Related blog posts:
Unit 1 Micro: Market Failure in Private Health Care


Pure Public Goods

* Normally funded & provided by the government
* Marginal cost of supply close to zero – if provided to one, it is provided to all
* Largely unconstrained in supply
* Non-rival – one person’s consumption does not reduce availability for others
* Non-excludable giving rise to the free rider problem
* Non rejectable - usually funded by general taxes

Pure public goods are not normally provided by the private sector because they would be unable to supply them for a profit. It is up to the government to decide what output of public goods is appropriate for society. To do this, it must estimate the social benefits from making public goods available

Public goods blogs on Tutor2u

Unit 1 Micro: Revision MC Questions on Public and Private Goods

Unit 1 Micro: Revision Presentation on Public Goods

 

 




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