“Since education is a merit good, the
government should pay for the people’s education up to, and including, tertiary
education, such that education is free”. Discuss. [25]
A
merit good can be defined as a good that society deems desirable, or a good that
has positive externalities to society. Education is definitely a merit good
given that it is desirable to society, and certainly it seems to confer
positive externalities to society as educated people are generally more
cultured, logical, and reasonable, and are thus less likely to contribute to
crime and social disorder. This paper discusses the issue that, since education
is a merit good, the government should pay for education up to and including
tertiary (university) education. While it is true that education is indeed a
merit good and the first part of the statement is definitely true, it does not
follow that the government should do more than merely subsidise education. In
fact, governments should only provide or pay for public goods which are not produced
by the free market, and since education is not a public good it should not be
provided free.
Education as merit good – and the
government should subsidise merit goods
It
can be argued that a good that has positive externalities to society can be considered
a merit good. An externality is a third party spill-over effect, or an effect
that affects third parties not involved in the production and consumption of
the good in question, and can be negative or positive. Positive externalities
are positive third party spill-over effects. As people do not consider the
positive externalities to society, but rather consider private benefits and
private costs, they under-consume merit goods. The government can subsidise
merit goods in order to boost their consumption, which is good for society.
Alternatively,
a merit good can be thought of in terms of imperfect information – people do
not have perfect information about the nature of the good, and thus they
misjudge its merits and demerits. Hence, this leads also to the under-consumption
of merit goods. The government by providing education at low cost (or even
providing education free) can be seen as trying to mitigate this informational
failure.
According
to the diagram below, there is a divergence caused by the externality between
the marginal social benefit (MSB) and the marginal private benefit (MPB),
assuming that marginal social cost equals marginal private cost (MSC = MPC).
Hence, clearly the government should directly subsidise merit goods, which
would shift the MPB to the MSB. In this case, a subsidy here is a government
payment directly to the consumer of education, which would shift the demand
curve to the right. The famous economist Milton Friedman once suggested that an
education voucher could be given to students, which would have the effect of
shifting the MPB to the right to eliminate the externality. If, on the other
hand, an indirect subsidy was given, meaning a subsidy was given to the
producer of education, then the MSC curve would shift to the right.
Economics diagram - what diagram should be drawn here?
The Government Should Not Pay Entirely for
Merit Goods
On
the other hand, the government should not pay entirely for merit goods. Governments
should pay for public goods which are non-rivalrous and non-excludable because public
goods cannot be produced by the free market without government intervention,
whereas merit goods can be produced by the free market. Non-rivalry is the
condition that consumption of a good by one person does not reduce the amount of
that same good for another person. Non-excludable is the condition that a
consumer cannot be excluded from consuming a good. These two conditions lead to
the situation where a free market does not produce public goods because of the
free-rider problem and because the allocative efficient outcome leads to
marginal cost being zero (MC = 0).
There
are also other major issues on having free education, other than the fact that
education is not a public good. First, there is the issue of opportunity cost. Opportunity cost is the cost of the next best alternative
forgone. The problem is that if resources are devoted to making education free,
then there are alternative uses for those resources that are forgone, such as
national defence, healthcare, and infrastructural investments. Hence,
subsidising education would make more economic sense rather than providing it
entirely free. Second, the government is not the only possible provider of
education – private agencies or public-private-partnerships (PPP) can also
provide education. For instance, in many countries around the world, there are
private agencies that provide education for profit.
In
conclusion, while the government could possibly provide merit goods, such as
education, for free in order to solve the market failure of positive
externalities not being taken into account by individuals, and to overcome the
informational failures associated with merit goods because people misperceive
their benefits, there are other issues that need to be seriously considered
like opportunity cost and alternative financing methods such as private
provision with some government intervention and public-private-partnerships. However,
in my opinion, the most important reason why governments should not provide
merit goods is that they are not public goods which are not provided by the
free market, and as such market-based policies should be used to encourage a
higher consumption of education rather than direct government provision of
education.
JC Economics Essays – Tutor's Commentary: This Economics paper was written under examination conditions by one of my former economics students, GSW. Putting yourself into your Economics tutor’s shoes, how would your Economics
tutor make this essay even better? Hint: Any good Economics tutor would suggest
using properly-labelled diagrams, with the curves moving to demonstrate a point, to make a good economics
argument. Having said that, this economics site does not feature diagrams - so what else can be improved on, other than the usual "draw a diagram"? In fact, this economics essay is rather well written, and an excellent
example of how a hardworking student from a humble background can learn and
improve in his studies! This is a economics good paper. Yet, there are other approaches. How would YOU approach this question? Would you go for a more direct approach, or a more indirect approach, compared to this Economics answer? While I would not have answered this Economics question in this particular way, this approach is still workable and can be utilised to get a good grade in Economics examinations. Thank you for reading, and cheers.
