State Provision to Correct Market Failure
- Merit goods and public goods are under-provided in a free market, causing a market failure
- Public goods are beneficial for society and are not provided by private firms due to the free rider problem
- They are usually provided free at the point of consumption, but are paid for through general taxation
- Examples include roads, parks, lighthouses, national defence
- Merit goods are beneficial to society but consumers cannot always access them as they are priced out of the market (e.g. private education or healthcare)
- To solve the market failure, governments can provide these goods and services
The Advantages & Disadvantages of State Provision
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