A Level Economics 52: Merit Goods

 Market Failure of Merit Goods:

Merit goods are goods and services that are deemed to have significant societal benefits, and their consumption is often encouraged by governments and policymakers. These goods are considered to be underprovided by the free market due to several reasons, leading to market failure. The market failure of merit goods can be attributed to externalities and imperfect information.

Externalities: Externalities are unintended spillover effects of a transaction that affect third parties who are not directly involved in the exchange. In the case of merit goods, positive externalities are often associated with their consumption. When individuals consume merit goods, such as education and healthcare, the benefits extend beyond the individual to society as a whole. For example:

• Education: A person who receives a good education not only benefits personally from increased earning potential but also contributes positively to society by being more productive, making informed decisions, and potentially reducing crime rates.

• 
  

• Vaccination: When individuals get vaccinated, they not only protect themselves from diseases but also contribute to the prevention of disease transmission to others, creating a positive externality for public health.

These positive externalities lead to an underallocation of resources by the free market because private consumers do not take into account the broader societal benefits when making consumption decisions. As a result, the quantity of merit goods consumed in a free market is lower than what is socially optimal, leading to market failure.

Positive Externalities in Production: In addition to positive externalities in consumption, merit goods may also generate positive externalities in production. Positive externalities in production occur when the production of a good or service leads to additional benefits for society beyond what is reflected in the market price. For example:

• Research and Development (R&D): Companies engaged in R&D activities may generate new technologies, innovations, or knowledge that can spill over to other firms or industries. This knowledge spillover can lead to technological advancements and improvements in productivity across the economy.

• 
  

• Training and Skill Development: Companies that invest in training and skill development programs for their employees can enhance their productivity and expertise. These skilled workers may then move to other firms, spreading knowledge and expertise throughout the labor market.

Imperfect Information: Another reason for the market failure of merit goods is imperfect information. Imperfect information refers to situations where buyers or sellers in the market do not have access to complete information about the goods or services being exchanged. In the case of merit goods, consumers may not fully understand the long-term benefits or the positive externalities associated with their consumption.

Due to imperfect information, consumers may undervalue the benefits of merit goods, leading to lower demand and consumption in the market. As a result, the free market may not allocate enough resources to produce and provide these goods at the optimal level, causing market failure.

Government Intervention and Policy Implications:

To address the market failure of merit goods and positive externalities, governments often intervene through various policy measures, such as:

1. Subsidies and Provision: Governments may subsidize the consumption of merit goods, making them more affordable for consumers. Alternatively, they may directly provide merit goods, like public education and healthcare, to ensure widespread access and benefit from positive externalities.

2. 
   

3. Support for Research and Development: Governments can provide funding or tax incentives to support R&D activities in industries with positive spillover effects. This encourages innovation and knowledge diffusion throughout the economy.

4. 
   

5. Public Awareness and Information Campaigns: Governments can invest in public awareness campaigns to educate consumers about the benefits of merit goods and raise awareness about positive externalities.

By addressing the market failure of merit goods and positive externalities, governments aim to ensure that society benefits from the broader societal benefits associated with their consumption and production. This leads to improved overall welfare and societal well-being, creating a more efficient allocation of resources and maximizing the positive impact on both consumers and producers.

Blood pressure drug 'reduces in-built racism'

A common heart disease drug may have the unusual side-effect of combating racism, a new study suggests.

Despite the study's small size and limitations, the researchers believe it raises important ethical and philosophical questions. Photo: ALAMY

By Stephen Adams, Medical Correspondent

3:34PM GMT 07 Mar 2012

120 Comments

 

The beta-blocker drug can reduce 'subconscious' racism, the Oxford University study found.

Researchers found that people who took propranolol scored significantly lower on a standard test used to detect subconscious racial attitudes, than those who took a placebo.

Propranolol is most often used to reduce high blood pressure by lowering the heart rate, as well as angina and irregular heartbeat. It is also used to manage the physical symptoms of anxiety, and control migraine.

It is thought to work by blocking activation of the peripheral 'automatic' nervous system, and in areas of the brain involved with formulating emotional responses, including fear, called the amygdalae.

The researchers believe propranolol reduces racial bias because such subconscious thoughts are triggered by that automatic nervous system.

  

Their small study took 36 white student volunteers, gave half a single 40mg dose of propranolol and half a placebo, and asked them all to undertake the Implicit Association Test - designed to test "subtle and spontaneous biased behaviour" - two hours later.

The test requires participants to visually sort particular words like 'joy' ,'evil', 'happy' and 'glorious', as well as black and white faces, into the correct categories.

Sylvia Terbeck, lead author of the study, published in the journal Psychopharmacology, said: "Our results offer new evidence about the processes in the brain that shape implicit racial bias.
"Implicit racial bias can occur even in people with a sincere belief in equality.

"Given the key role that such implicit attitudes appear to play in discrimination against other ethnic groups, and the widespread use of propranolol for medical purposes, our findings are also of considerable ethical interest."

Professor Julian Savulescu, of the university's Faculty of Philosophy, and a co-author of the study, said: "Such research raises the tantalising possibility that our unconscious racial attitudes could be modulated using drugs, a possibility that requires careful ethical analysis.

"Biological research aiming to make people morally better has a dark history. And propranolol is not a pill to cure racism. But given that many people are already using drugs like propranolol which have 'moral' side effects, we at least need to better understand what these effects are."

But Dr Chris Chambers, from Cardiff University's School of Psychology, said the results should be treated with "extreme caution".

He said: "We don't know whether the drug influenced racial attitudes only or whether it altered implicit brain systems more generally. And we can't rule out the possibility that the effects were due to the drug incidentally reducing heart rate.

"So although interesting, in my view these preliminary results are a long way from suggesting that propranolol specifically influences racial attitudes."

*Propranolol reduces implicit negative racial bias, Psychopharmacology DOI 10.1007/s00213-012-2657-5

Decent housing is not just a wish, it is a human right

The former US president says we are morally obligated to act, and should do so more urgently and effectively

Jimmy Carter

Guardian Professional, Monday 20 June 2011 08.30 BST


In order to create true, sweeping changes in providing decent housing, we must begin to talk about this human necessity as a basic human right. This is not something that families around the world can only wish to have, not something that only the luckiest can hope to realise, but something that everyone should have an opportunity to achieve.

When we understand the magnitude of housing needs and their different forms in communities worldwide, we will recognise that as more fortunate people we are morally obligated to act. Once we view the issue of housing in these appropriately urgent terms, we will begin to act in concert more effectively.

A good first step is to make sure we are personally engaged in striving together to achieve specific goals. There are many unified and well-proven advocacy efforts that we can support. We need to raise awareness so that our fellow citizens will join us in providing solutions for those who are struggling to overcome the obstacles that prevent their families from having a decent home. We can take an active role, from participating in large-scale efforts such as the UN-designated World Habitat Day, to joining local organisations that meet housing needs and provide funding for projects in our own towns and neighbourhoods.

Creating safe and decent places to live can have incredibly positive effects on a family's health, on study habits of students, and on a neighbourhood's overall attractiveness and stability. With so much at stake, it is time for our definition of decent housing to expand to include a spectrum of solutions: new construction, repair and renovation, housing finance, infrastructure development, secure land tenure. It is time for us to plan and build together.

Through my international work with the Carter Centre and 28 years of volunteering to build homes with Habitat for Humanity, I have seen that the best, most sustainable results achieved when communities and families are deeply involved in orchestrating their own changes.

In locations around the world, from South Africa to South Korea, my wife Rosalynn and I have had the privilege of building simple Habitat homes alongside the parents, grandparents, and neighbours who will inhabit them. We have experienced the very real difference that a strong roof and sturdy walls can make to a family that has never known the security of either, and we have come away with a lasting impression of achievement and gratification.

Efforts that invite families into the process of improving their own lives and their own homes ensure that those individuals have the materials, assistance, and skills they need to lay all the right foundations. People sometimes just need a little help to transform their lives, and community-based efforts work best. So does creating an opportunity for people from all backgrounds to come together in a common cause to help each other; because that's exactly what happens.

When we work alongside families and play a part in helping them achieve what we consider to be a basic human right, we participate in a potentially world-changing result. Their lives aren't the only ones that change. So do ours.

Former US president Jimmy Carter is a volunteer for Habitat for Humanity International.