CIE AS SAMPLE ESSAYS

With the use of examples, explain the difference between public goods and merit goods and consider whether markets will always provide enough of both goods. [8]

Public goods are characterized by non-rivalry and non-excludability. Non-rivalry means that one person’s use does not reduce availability for others, as seen in national defense—everyone benefits from protection regardless of individual contributions. Non-excludability implies that it’s difficult to prevent anyone from using the good, such as a lighthouse providing guidance to all ships.

In contrast, merit goods are typically under-consumed and under-produced due to information failure. They offer greater societal benefits than individuals realize. Education exemplifies a merit good; while it provides significant long-term benefits, many people may undervalue it, leading to under-consumption. Governments often subsidize merit goods to encourage greater uptake.

In a market economy, both public and merit goods are often inadequately supplied. Public goods lack profitability for private companies, as seen in national defense, where government funding is essential. Similarly, merit goods like education can be underprovided because private institutions may prioritize profit, leaving low-income individuals with limited access.

In a mixed economy, government involvement improves the provision of both goods. However, budget constraints can limit the effectiveness of these interventions, affecting the availability of public and merit goods.

Evaluating whether markets can provide enough of both public and merit goods reveals some insights. In public goods markets, without government intervention, it is unlikely that adequate provision can be achieved, as demonstrated by the national defense example.

Mixed economies can improve outcomes for both public and merit goods through government involvement. However, the extent and effectiveness of this involvement are critical. A mixed economy with sufficient funding and efficient government mechanisms can provide both goods effectively. Nonetheless, challenges such as budget constraints and political influences may hinder optimal provision. Thus, while government intervention is essential, its quality and efficiency greatly impact the availability of public and merit goods.