Public Goods And Merit Goods Economics Essay

By July 2, 2017 July 11th, 2017 Economics

The public goods, such as the defence, justness, public order and so on, can non be supplied by private sector or persons. Furthermore, public goods have the properties called incompetency and non-repulsive. The property of incompetency agencies that there would be no fringy cost when one resource is used by one more individual. And non-repulsive demonstrates that many people could utilize the public goods in the same clip. By and large, the public goods ever match the private goods which are operated by private sector or persons. Meanwhile, the virtue goods which could be supplied by private sector have a strong relationship with the private goods. However, the virtue goods are ever intervened by authorities to some extent through the intercession of the monetary value and supply, to increase the societal public assistance ( Gayle McPherson, 2006 ) . The demerit goods are the corresponding side of virtue goods. This essay will foremost present the chief subject. The undermentioned subdivision will show the public goods and virtue goods in the UK. And so an analysis about these two sorts of goods will be processed. Finally, a decision will be given.

2.0 Public Goods and Merit Goods in the UK

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The chief subject of this essay chiefly discuss the fact that whether the public assistance of consumers is increasing or non through the analysis of the demand and supply. The public assistance estimated here is showed by the consumer excess, described in the figures through the demand and supply curve. Since there are differences between the public goods and virtue goods, it is necessary to discourse the different demand and supply status of these two sorts of goods.

2.1 Public Goods

In the UK, the public goods, such as defence and justness, are controlled and operated by authorities. One of the ground why public goods are owned by authorities is chiefly the immense cost which the private sector or single can non afford. Another ground may be the trouble in measuring the public goods ( Felix Schlapfer, 2006 ) . The existent value of the public goods can non be identified through the market monetary value. Owing to the two property of the public goods, it is non suited for the private sector to run, for private ever aims to recognize the optimum net income. The failure of the railroad system denationalization can show the fact. In the past 10 old ages, the public subsidy has been increased three times while the new electric train decreased to the lowest degree of the Europe. Consequently, the railroad system had to return to be commanded by the authorities. And the web and the preparation of the employees could be supplied ( Mark Casson, 2004 ) . In the recent old ages, the budget of the National Health Service has been increased to a big graduated table, showing that the public assistance of the people has been enhanced ( Martine Rutten & A ; Geoffrey Reed, 2009 ) .

However, the range of the public goods is limited while the virtue goods go more and more of import for both the society and the persons. From the statistics, the ingestion of public good has been decreased from 1976 to 1995, on the norm of 34 % , which can be showed in the tabular array 1 ( Riccardo Fiorito & A ; Tryphon Kollintzas, 2004 ) .

2.2 Merit Goods

W. Ver Eecke ( 2003 ) analyzed the construct of the virtue good, based on the economic distinguish by Adam Smith and the debut of virtue good by Musgrave. Harmonizing to the analysis, the virtue good could be used to analyse the peculiar economic patterns. And Stefan Mann ( 2003 ) defined the virtue good as the trade good to which the authorities could step in the personal penchant, based on the instance of the organic nutrient in Germany. As is known to all, the virtue goods can be supplied by the private sector or persons, such as the instruction, wellness, house, museum, and the Forth. Although the public goods and the virtue goods have the complementary relationship, the importance of the virtue goods can be evidently seen. As the statistics showed in table 1, the ingestion the authorities in merit goods increased twelvemonth by twelvemonth from 1976 to 1995. And the instruction and the wellness have taken a big per centum ( Riccardo Fiorito & A ; Tryphon Kollintzas, 2004 ) . With the development of the society, the lodging outgo has become more and more of import in the authorities ingestion construction.

However, the intercession would do jobs even if it increased the public assistance of the consumers some clip. This job will be discussed in the 3rd subdivision. Even the research and development of the industrial productiveness could be seen as the virtue good to some extent under the intercession of the authorities ( Dolores Anon Higon, 2007 ) .

2.3 Importance to Identify the Public Goods and Merit Goods

The importance of placing the public goods and merit goods can be interpreted as the service for the policy determination. The authorities should place that which sort of service can be seen as a public good or virtue good. And so the corresponding steps can be decently arranged.

Table 1: The Government Consumption % Composition


Public Goods

Merit Goods
























Beginning: Riccardo Fiorito & A ; Tryphon Kollintzas, “ Public Goods, Merit Goods, and the Relation between Private and Government Consumption ” , 2004.

3.0 The Analysis Based on the Examples

The public goods should be provided by the authorities while the virtue goods could be supplied by the private sector. In the UK, the public goods are supplied by the authorities connoting that the consumers could portion the service without paying the cost or monetary value. In this sector, the defence will be selected to demo the status of demand and supply. As an of import portion, the supply and monetary value of virtue goods could be intervened by the authorities so that the status of the demand and supply would be different.

3.1 The Public Goods Analysis Based on the Example of Defense

As is known, the defence is the cardinal public good provided by the authorities. The demand for defence would be different from clip to clip. The snap of the demand for defence is nearing to zero, connoting that the demand curve is steep. And the supply of the defence is fixed in short-run, while it will alter in a long clip. Consequently, the supply curve can be showed steeply excessively. As Figure 1 shows, D1, S1, P1, Q1, represents the initial demand, supply, monetary value and measure, severally. Supposing the environment alterations, such as the Iraq war, the supply of the defence increased, from Q1 to Q2, while the supply curve shifted from S1 to S2. The grounds could be gained from the increased arm industries and other related events. If people think that the defence should be enhanced, they would increase the revenue enhancement vulnerably. Here, the revenue enhancement can be described as P2 – P1. Meanwhile, the demand curve would be shifted from D1 to D2. However, the switching scope of the demand and supply curve is different. By and large, the demand curve would be shifted in a smaller scope, for the consumer excess would be declined owing to the increasing monetary value ( David Parker & A ; Keith Hartley, 2003 ) . In other words, the status of public assistance would be deteriorated.

3.2 The Merit Goods Analysis Based on the Example of Housing

With the development of the society, some public goods have become the merit goods. Even the public goods are monopolized by authorities and the virtue goods are flowed in an imperfect market. On status that there are peculiar factors, the imperfect competition would play a positive function ( Ben Lockwood, 2003 ) . Here the analysis will take the illustration of the lodging in the UK to show the status of demand and supply. Through the pecuniary policy, the house monetary values have fallen by 0.75 % . Supposing the demand of the lodging is fixed for a long clip, for the growing of the population is changeless. As Figure 2 shows, owing to the low involvement rate, the lodging market has been spread outing with the sufficient money ( J. Stewart, 2005 ; Adam Elbourne, 2008 ) . And the supply of the lodging has increased from Q1 to Q2, as the supply curve switching from S1 to S2. Meanwhile, the monetary value was decreased from P1 to P2.

4.0 Decision

In decision, the public goods and the virtue goods are influenced by authorities. The public goods are wholly supplied by authorities, while the virtue goods, intervened by authorities. Owing to the peculiar properties, the public goods could non be privatized. The virtue goods could non be wholly supplied by the private sector. Through the analysis of the demand and supply of these two sorts of goods, the consumer excess or public assistance could be watched. Furthermore, it would supply information such as the determination devising. As a consequence, the importance of placing the concrete sorts of goods should be paid peculiar attending.

5.0 Recommendations

When the supply of public goods is increasing, will the public assistance of the consumers surely increase? If it happened, how much or how many will it convey? For the virtue goods, how to take the corresponding steps to copy with the jobs for the authorities? Possibly these inquiries need to be farther explored.


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