State Provision of Public Goods

• When does state provision of public goods occur?

  State provision occurs when the government (or state) intervenes in the market in order to supply a good or a service.
• What are the two goods that shall be supplied by the government?

  • A merit good
  • a public good
• Why would the government supply a merit good?

  The government supplies goods and services as state education and health, e.g. NHS as society believes that these are under-provided by the market mechanism.
• Why would the government supply a public good?

  The government provides goods and services such as defence and infrastructure, e.g. roads as these would be under-provided by the private sector due to the free rider problem.
• How could supplying merit and public goods be a positive thing for the government?

  • improve standards of living -> increase demand
  • NHS - better health so more workers
  • improve access to essential services e.g. education which deceases structural unemployment
  • help population e.g. vaccine which protects against the external shocks e.g. COVID
  • improves equality - closes inequality gap -> social improvements
• How could supplying public and merit goods be a negative thing for the government?

  
  

  • increases the free rider problem - people taking advantage of public goods
  • costly for the government
  • opportunity cost for the government
  • waiting lists of essential services increases -> harder to manage
  • government has to take accountability -> e.g. building materials deemed to be unsafe for schools