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Healthcare as a Socially Desirable Merit Good

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jimena rey

on 9 June 2014

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Transcript of Healthcare as a Socially Desirable Merit Good

Healthcare as a Socially Desirable Merit Good
Merit and Demerit Goods
Costs and benefits that are not reflected in the price mechanism.
Conclusions and
In conclusion, although merit goods produce positive externalities they are unlikely to be efficiently provided and allocated. It is important for Government to intervene so as o correct for market failure, to acquire a more impartial allocation and to improve the performance of the economy.
How the private sector and the government provide the National Health Service (a socially desirable merit good) in the UK in order to avoid the market failure that would take place if it was left to the market mechanism.
1. Introduction
2. Merit and Demerit Goods
3. Externalities
4. Positive & Negative Externalities
5. NHS
5.1 Positive Externalities NHS generates
5.2 Market Failure & Private Provision
5.3 Government Intervention
Direct Provision
6. Conclusions and Recommendations
7. References
Government Intervention
Merit Good
A good which is under-provided and under-consumed by the market mechanism.
i.e. Health services, education, work training, insurance.
Demerit Good
Goods over-provided by the market mechanism.
i.e. Cigarettes, drugs, alcohol.
Positive externalities the NHS generates
Better healthcare increases the number of labour force
Labour is more productive
Less absentees from jobs
More efficient production
National health service is financed by government and funded by taxpayers
Also study the externalities from consumption and production, and how these relate to market failure and government intervention.
Anderton (2008)
When NSC > NPC = Negative E
When NSB > NPB = Positive E
Benefits enjoyed by a third party as a result of an economic transaction
in production: recycling of waste material
in consumption vaccination
Source: Dineshbakshi (2014)
Source: Dineshbakshi (2014)
Costs not paid for by the producer or consumer carrying out a certain activity
in consumption: passive smoking
in production: intensive use of fertilicers
Also provided by the private sector but in a smaller quantity, if not the externalities would increase leading to a market failure.

It has advantages like a wider choice, quality, innovation,and competition. This would also reduce state spending in healthcare.
Private provision & Market Failure
Avoids market failure from happening, but if it is not handled correctly this can also lead to government failure.
There is maximisation of net social benefit even if that means sacrificing private profit
Helps internalising the externalities produced, avoiding this way a welfare loss
Direct Provision
World's largest openly funded health service
A recommendation is to increase the number of public private partnerships. There are several ways to do this.
Derek Chiu
Jimena Rey
Joyce Omueti
Mohammad Almutairi
Salim Albadi

List of References
Anderton, A. (2008). Economics A Level. Fifth Edition. Essex: Pearson Education. 631 pages

Appleby, J. (2013), ‘Spending on health and social care over the next 50 years. Why think long term?’ The King’s Fund. [Online] Available from: http://www.kingsfund.org.uk/sites/files/kf/field/field_publication_file/Spending%20on%20health%20...%2050%20years%20low%20res%20for%20web.pdf [26 May 2014]

Glanville, A. and Glanville, J. (2011) Economics from a global perspective. For use with International Baccalaureate Diploma. Third Edition. Dolton: Glanville Books Ltd. 561 pages

HM Treasury (2007), Pre-budget Report and Comprehensive Spending Review, quoted in Anderton, Alain, 2008, Economics A Level. Fifth Edition. Essex: Pearson Education. p. 422.

Parliament (c. 2010) ‘Why is there public provision of healthcare?’ Scrutiny Unit. Economics in practice [Online] Available from: http://www.parliament.uk/documents /commons/Scrutiny/SU%20Economics%20in%20practice%20%20healthcare%20(1).pdf [30 May 20104]
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