2.11 Government Intervention (GOVT EXPENDITURE AND STATE PROVISION) Flashcards
(23 cards)
what is state provision
direct provision of goods/services by the government free at the point of consumption
govt owns and pays for the provision e.g. education and paying teachers.
draw a graph to represent state provision
inelastic supply curve
demand curve
The point between supply and end of demand curve is excess demand.
do price of healthcare (y axis) and quantity of healthcare (x axis)
heathcare is a merit good
What types of goods are often provided by the state?
Public goods (e.g. street lighting, defence)
Merit goods (e.g. education, healthcare)
Why does the government provide goods and services?
To correct market failure, ensure equity, and promote social welfare where markets fail to allocate resources efficiently.
How does state provision correct market failure?
It increases consumption of merit goods and ensures public goods are available, which the private sector would under-provide due to missing profit incentives.
What is the opportunity cost of state provision?
The government must divert scarce resources from other uses (e.g. defence or infrastructure), which could have delivered more social benefit.
How can state provision lead to government failure?
Poor management, lack of competition, and political motives can lead to inefficiency, overproduction, or misallocation of resources.
what market is it for public goods
a missing market as no firms want to produce as there is zero financial incentive
what are the pros of state provision
- makes essential goods accessible to everyone, regardless of income
- ensures universal access
- corrects under-consumption of merit goods
- promotes equality and social welfare
- avoids problems of free rider for public goods
- can redistribute wealth and reduce inequality
- addresses market failure
Corrects market failure
The government can provide public and merit goods that the free market under-provides (e.g. education, healthcare, defence), helping to improve allocative efficiency.
Ensures equity and universal access Everyone can access essential services regardless of income, reducing inequality and promoting fairness (especially important in healthcare and education).
Overcomes the free rider problem
Public goods like street lighting or national defence are non-excludable and non-rivalrous, so the market would fail to provide them without government intervention.
Improves long-term productivity
By investing in education and health, the government boosts human capital, which can lead to long-term economic growth.
Protects consumers
State provision may prevent exploitation by private firms in areas like medicine, utilities, or education, where private profit motives could undermine quality or access.
what are the cons of state provision
- without a profit motive, there may be less incentive for efficiency
- opportunity cost of the allocation of resources
- high cost to tax payers
- risk of inefficiency and waste
- can crowd out private provision
- may lead to govt failure
High cost to taxpayers
Funding public services requires significant government spending, which must be raised through taxation — creating opportunity costs and potential distortions in the economy.
Risk of inefficiency
Without the profit motive or competition, public services may become inefficient, suffer from waste, poor quality, or lack innovation (known as productive inefficiency).
Bureaucracy and slow decision-making
Public sector organisations can be large and bureaucratic, which may reduce responsiveness to consumer needs.
Crowds out private sector
If the government dominates service provision, it may discourage private firms from entering or innovating in those sectors.
Potential for government failure
If the government misallocates resources (e.g. overspends or underprovides), the intervention can lead to worse outcomes than the market would have achieved on its own.
what is government expenditure
govt spending to pay for the needs of society such as heath, education, infrastructure.
What are the two main types of government expenditure?
Current spending – day-to-day expenses (e.g. public sector wages, hospital supplies).
Capital spending – investment in infrastructure (e.g. roads, schools).
What are the main objectives of government expenditure?
Provide public and merit goods
Support economic growth
Reduce inequality and poverty
Stabilise the economy (via fiscal policy)
What are public goods, and why does the government fund them?
Public goods are non-rivalrous and non-excludable (e.g. street lighting). The government provides them to overcome the free rider problem.
What are merit goods, and why does the government provide them?
Merit goods (e.g. vaccinations, education) are under-consumed in a free market due to information failure, so the government subsidises or directly provides them.
What is an example of government spending correcting information failure?
Funding public health campaigns or compulsory education to ensure better-informed decisions by consumers.
What is the risk of government failure in spending?
Misallocation of resources, inefficiency, high administrative costs, or unintended consequences (e.g. dependency or overuse of free services).
How is opportunity cost relevant to government expenditure?
Money spent on one area (e.g. defence) means less funding for others (e.g. health), so decisions must weigh relative benefits.
How are government expenditure and state provision related?
State provision is a type of government expenditure, but government expenditure includes many other forms of spending too.
Give examples of government expenditure that are not state provision.
Transfer payments like pensions and benefits
Subsidies to private firms
Debt interest payments
Give examples of state provision.
NHS hospitals
State schools
Police and fire services
These are directly provided by the government.
What’s a key difference in delivery between the two?
State provision means the government is the producer, while other forms of expenditure may involve private firms or individuals receiving funding.
What’s the main difference?
Government expenditure = broad spending
State provision = specific direct provision of goods/services by the state
