State Provision to solve Market Failure ( Direct Provision) Flashcards
(30 cards)
What is state provision?
The direct provision of goods and services by the government, usually free at the point of consumption.
What is the government’s role in state provision?
The government takes over the market to allocate resources towards a good or service, ensuring it is available to all citizens.
Why is state provision used for merit goods?
Merit goods, like healthcare and education, are often under-consumed or under-produced in the free market, so the government provides them to ensure equitable access.
What does state provision aim to correct in the market?
It aims to correct the market failure where goods or services are under-consumed or not provided due to externalities or inequity.
How does state provision address inequity?
It ensures that everyone has access to essential goods like healthcare and education, regardless of income or social status.
What example of state provision can be seen in healthcare?
Government-funded healthcare systems, like the NHS, offer medical services free at the point of use.
Why might state provision be necessary for public goods?
Public goods, like street lighting or national defense, suffer from the free rider problem, where individuals may benefit without paying, making private provision inefficient.
What is the free rider problem?
It’s the issue where individuals can benefit from a good without paying for it, leading to under-provision or no provision at all in a private market.
What is an example of a public good provided by the state?
National defense, which benefits everyone regardless of whether they contribute to funding.
What are the challenges of state provision?
It can lead to inefficiency, lack of innovation, and possible inequity if the provision isn’t well-targeted or properly managed.
How does state provision work in healthcare?
The government allocates resources to healthcare through a set annual budget (e.g., the NHS in the UK), ensuring universal access.
What is the role of government funding in state provision?
The government sets a budget each year for services like healthcare and education, enabling them to be free at the point of use.
How does state provision affect the demand curve?
With state provision, demand is price inelastic, as the service is provided free at the point of consumption, making access available to everyone regardless of income.
What happens when the government provides free healthcare?
It shifts the demand curve by increasing the number of consumers accessing healthcare, as the price of services is reduced to zero for users.
How does state provision address under-consumption and under-production?
The government ensures that essential goods, like healthcare, are provided even when the private market would fail to deliver enough of these goods.
What is the impact of state provision on inequity?
By providing free services, it ensures universal access, thus reducing inequalities between different income groups.
How does state provision help solve market failure?
It addresses the free rider problem and ensures efficient allocation of resources for public goods like healthcare, which the market often under-provides.
What is the socially optimum level in the context of state provision?
The government allocates resources to reach a socially optimum level of services, ensuring that maximum welfare is achieved.
How does state provision ensure allocative efficiency?
By directly supplying goods like healthcare, the government ensures that resources are allocated efficiently to meet societal needs.
Why is state provision important for achieving maximum welfare?
It reduces inequality and market failure, promoting a more equal distribution of goods and services, ultimately leading to higher societal welfare.
What is a major issue when the price of a good is set to zero in state provision?
Excess demand occurs because the quantity demanded exceeds the quantity supplied, leading to a shortage since prices cannot rise to ration the demand.
How does excess demand affect state provision?
Unlike in the free market, where prices would adjust, state provision cannot raise prices to manage demand, creating a mismatch between supply and demand.
Why is funding a significant issue for state provision?
State provision requires large sums of money from taxpayers, leading to concerns about long-run funding, possible higher taxes, or cuts to other public services.
What are potential long-term funding challenges for state provision?
Governments must find sustainable ways to fund services, possibly through higher taxes or borrowing, which can lead to debt and economic strain.
