Revision Package 2, Essay Q1

Revision Package 2, Essay Q11.(a)Explain whether public housing is considered an example of a public good or a merit good.[10]Focus: characteristics and classification of public goods, merit goods

Skill: Explain differences, distinguish, compare

Context: none

Show how public housing does not meet the characteristics of public goods but meets that of merit goodsIntroduction beginning of essayDefinitions: Public goods and merit goodsPublic housing: is a form ofhousing tenurein which the property is owned by agovernmentauthority. (In Singapore, HDB leases HDB flats on 99 year leases)

Overview of essay: Classify - Public housing is a merit good as it is excludable and rivalrous (therefore not public) and produces positive externalities

3Body explaining and classifyingPoint 1: Public goods are non-excludable while merit goods are excludable.

Define non-excludableIllustrate with an example (e.g. street lighting, national defence, traffic lights)Explain how public housing is excludable not a public goodBody explaining and classifyingPoint 2: Public goods are non-rival while merit goods are rival.

Define non-rivalIllustrate with an example (e.g. street lighting, national defence, traffic lights)Explain how public housing is rival not a public good

Body explaining and classifyingPoint 3: Public goods will not be provided by the free market while merit goods will be, although under-produced or under-consumed (no resources allocated versus under-allocation) Body explaining and classifyingNon-excludable free-riders no revealed demand no price signals no demand for public goods

Non-rival For an additional user, MC = 0 Under Allocative Efficiency, P = MC = 0 private firms will not provide no supply for public goods

Missing market, no resources allocated Market fails!

Body explaining and classifyingMerit goods generates positive externalities (more sanitary conditions leading to less medical costs, population growth leading to economic growth)

Pursuit of self-interest only (MPC, MPB, examples)(versus) Societys interest and welfare (MSC, MSB = MPB + MEB)

Body explaining and classifyingDiagram and explanationMarket versus socially optimal outcomeUnder-consumption of public housing by QmQs, under-allocation of resources, welfare loss Market failsConclusion- summarize, link to part b?Public housing is excludable and rival, and generates positive externalities deemed socially desirable by governments not a public but a merit good!Some scope for government intervention to lead to a more efficient allocation of resources (part b)(b)Discuss whether government intervention can lead to a more efficient allocation of resources where goods with externalities exist in markets.[15]Focus: resource allocation for goods with positive and negative externalities

Skill: Discuss how far, yes/no (thesis, anti-thesis)

Context: none, use public housing as an exampleCan government intervention reduce market failure arising from positive and negative externalities? Introduction beginning of essayDefine:more efficient allocation of resources: allocative efficiency, P=MC, MSC = MSBExternalities

Overview: In this essay, I will explain how government intervention can lead to a more efficient allocation of resources as well as some conditions that lead to government failure.Body explaining and classifyingPoint 1: Cause for intervention.

The existence of both positive and negative externalities will lead to market failure, where the market fails to allocate the goods efficiently.Explanation of how negative externalities leads to market failure (with an example)

Body explaining and classifyingPoint 2: Intervention in markets with negative externalities for a more efficient allocation.

Identify & define policy: taxes (or tradable permits or legislation or education)Explain how it works (with a diagram)Strengths and constraintsWhat is it?

How does it work?

How well does it work?But always ensure that your whole essay has at least 1 market based policy.15Body explaining and classifyingPoint 3: Intervention in markets with positive externalities for a more efficient allocation.

Identify & define policy: subsidies (or legislation or education)Explain how it works (with a diagram)Strengths and constraintsWhat is it?

How does it work?

How well does it work?But always ensure that your whole essay has at least 1 market based policy.16Conclusion / evaluation So, can government intervention lead to a more efficient allocation of resources where goods with externalities exist?

Depends on:Effectiveness and suitability of policiesContext of country (state and characteristics)