Here is a suggested approach to how A Level Economics students might respond to the essay question "Examine the view that the government should subsidise free entry to museums in the UK."
Museums and Government Subsidy
Examine the view that the government should subsidise free entry to museums in the UK (25)
Free entry makes museums more affordable to families and for school visits. This will increase market demand especially from families on lower incomes. Museums could then increase their revenues from cafes and shops and also attract extra revenue from sponsorships for exhibitions. There is a public good aspect to the wider use of museums.
Museum capacities are limited. They are not pure public goods because space in a museum is rival - i.e. one person’s consumption of an exhibition reduce the amount available for someone else. Free tickets will probably lead to increased congestion, lengthy queues and the need for some kind of rationing for users. For example, the British Museum in London attracted approximately 6.9 million visitors between April 2015 and March 2016 and more than two thirds of the visitors came from overseas.
Museums are good for the local economy because they attract visitors / tourists which can act as an injection of demand into the local or regional circular flow and perhaps lead to a multiplier effect which increases employment and real incomes.
Although tourist revenues are good, if they are enjoying a private marginal benefit from their visit, the benefit-pay principle suggests that they should be making a contribution to the operating cost of the museum. That might allow the museum to charge lower prices to people living in the area.
There might be positive externalities from the consumption of exhibitions and learning resources available in museums. This means that the social benefit from consumption is higher than the private benefit. Without some form of subsidy that lowers the cost to museum visitors, museums may be under-consumed leading to a potential loss of social welfare. The analysis diagram shows the possible deadweight loss of welfare.
It is difficult to put a financial value on the positive externalities from museums. And funding museum entry through subsidy involves an opportunity cost. £100 million used for museum subsidy for example might be better spent (from a social welfare point of view) in funding free swimming lessons for the local community or helping to keep open libraries or care centres. Without subsidy, a museum might be more focused on secure charitable donations as a source of revenue.
Ultimately the question of whether to provide a subsidy to museum operators depends on a value judgement. Without subsidy, could museums attract sufficient private sector sponsorship/support to keep ticket prices down? Should taxpayers who live long distances from major towns and cities where most museums are located have to pay for others to benefit? In theory a subsidy for museums can be justified on grounds of positive externalities and helping to overcome a market failure, but in practice some museums might be more in need of subsidy than others. For example, museums in London ought to be able to generate enough revenue from tourist visitors with less need for government subsidy. There might be a case for subsidy to focus on museums in parts of the country less well served by museums and which want to build new facilities to attract visitors and create new jobs.
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