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Economics explained


Market failure

Public goods and government-provided goods

Public goods and government-provided goods

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Students often wrongly define a public good as a good that is provided by the government. The word 'public' in 'public good' refers to the fact that members of the general public cannot be excluded from enjoying the good's benefits. It is this that causes market failure.

Education and healthcare are both private goods and merit goods. They are both excludable and rival. Although it does not generally happen in the NHS, it is perfectly possible to deny someone access to a doctor if they refuse to with pay — the service is excludable. Also, if an individual has a consultation with a doctor, this reduces the time the doctor has available to see other patients healthcare the marginal cost is not zero and the service is rival. Both education a healthcare can and are provided through the market mechanism.

Direct provision of public goods

To correct the market failure, governments often provide public goods. Government-provided goods include public goods such as defence, police and roads, but they also include merit goods such as education and healthcare.

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