Direct provision of goods & services by the government

This lesson is about government intervention in the market by directly providing goods and services.

We have already looked in to how merit goods may be under-provided and under-consumed, and public goods may not be provided at all through the market system.

To solve this problem, the government may decide to directly provide these goods and services. Examples of merit goods and services that the government often provides are healthcare and education. Even if the government corporations that provide these services may charge a price for it, it will not be like the private firms whose main aim is to make profit.

Public goods are usually provided by the government free of charge. Private firms may not provide these goods because there is no way a free-rider can be prevented from using it without paying. Therefore the government provides these goods and services and it has to be funded through tax revenue. The implication is that, any how the economy has to pay for the provision of such goods.

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