7) Evaluate the consumption/production of merit goods - MMT

Question 1

What are merit goods?

Answer 1

Goods and services which tend to be under-consumed as (due to information failure) consumers under-estimate the benefits the benefits of consuming them

Question 2

What are main examples of merit goods?

Answer 2

Health and education

Question 3

What are other examples of merit goods?

Answer 3

Public transport, public facilities eg libraries, museums, swimming pools and gardens

Question 4

Who are merit goods consumed by?

Answer 4

Consumers and businesses

Question 5

Who are merit goods produced by?

Answer 5

Not the private and public sector

Question 6

Examples of merit goods in the private and public sector:

Answer 6

• private schools/state schools
• private hospitals/NHS
• private swimming pools/council owned swimming pools

Question 7

Merit goods tend to be…

Answer 7

Under consumed

Question 8

Consumption of merit goods: what is the extent of under-consumption?

Answer 8

• It may depend on duration
• It may depend on the politicians
• It may depend on the size of it
• It may depend on unforeseen circumstances

Question 9

Consumption of merit goods: what is the extent of under-consumption? (Talk about duration)

Answer 9

Eg underconsumption of education (as happened in the pandemic) may be negative for young people in the short-term but may also have higher negative long-term effects on the economy, if an entire generation of young people fall below their potential

Question 10

Consumption of merit goods: what is the extent of under-consumption? (Talk about politicians (government failure))

Answer 10

Something like education is very prone to this - new politicians come into power, introduce their own ideas as to how education should work. If these ideas are flawed then whole generations of young people may not have the appropriate courses offered to them. If the ideas are good then any under-consumption might be a lot smaller

Question 11

Consumption of merit goods: what is the extent of under-consumption? (Talk about the size)

Answer 11

Eg if 1% of the population is missing out on the right type of healthcare, that is obviously bad for society. However, if 10% of the population are missing out, the impact could be disastrous

Question 12

Consumption of merit goods: what is the extent of under-consumption? (Talk about unforeseen circumstances)

Answer 12

If 1% of the population is under-consuming health care then the effects might be negative. However, if there was to be another pandemic, then that 1% might create a much larger problem eg creating an environment where a virus might spiral out of control

Question 13

How do merit goods tend to be produced?

Answer 13

Through a combination of private sector and public sector organisations, the question to be evaluated is normally… “how much of a role should there be for the public sector?”… it depends

Question 14

“How much of a role should there be for the public sector?” - it might depend on the type of merit goods:

Answer 14

Healthcare and education are obviously of critical importance to society so they are strong arguments for government involvement in producing them. But what about museums - they’re a merit goods - are they as important as schools and hospitals? What about public transport? Also, you might want to debate about the best type of support. Should the government subsidise the production of merit goods or should they directly intervene to provide them free to households at point of use (eg state schools)

Question 15

“How much of a role should there be for the public sector?” - it might depend on the economic position at the time:

Answer 15

If the economy is strong and the government has high revenues from tax, they might for example invest money in public parks, libraries and other facilities. When recession strikes these are the first things the government stop supporting

Question 16

“How much of a role should there be for the public sector?” - it might depend on the opportunity cost of producing merit goods, give an example

Answer 16

For example, the government could commit to subsidising children’s nursery places for all pre-school children. This might cost £20 bn a year but that is £20 bn that the hospitals, army and police cannot then have