Should Governments

subsidise Museums?

BrainBlast Reasons why they should and reasons why they

should spend on different services

LO: to be able to make a judgement on government

intervention

Bee Keeping

1. Explain why Bee-Keeping has positive externalities.

2.Should the government have Bee-Keepers as public sector workers?

3.What would be the implications if they did

Should Governments

subsidise Museums?

Positive Externalities

Are those benefits that are external to an exchange. They are third party effects ignored by the price mechanism.

With positive externalities, less is produced and consumed than the socially optimal level.

In this case: …..The positive externalities

are the benefits that are external to the exchange of the museums educational service, which are third party effects ignored by the market forces.

Public Good

• Quasi- Public Good• Non-Rivalry• Non-Excludability• No free rider problem

Marginal Private Benefits…

In a free market: consumer’s only have concern about the private benefits and private costs from consuming a good or service.

The price they are willing to pay reflects/shows the magnitude of the benefit.

For a museum that will only be sales revenue from products, to commemorate/recall the history displayed.

Marginal Social Benefits…

MPB + External Benefit = Social Benefits

External Benefit = Private Benefits – Social Benefits ( difference between on a graph)

External Benefits increase disproportionally with output consumed (when MPB and MSB diverge at y-axis on graph)

Essential learning from history

External Benefits from consumption

So we should subsidise

Museums…• This is because….– Supply of Museum’s is

inelastic SO…– Increase consumption of

good/service– Therefore there is an

increase in the benefit to society

– Diagram: Triangle of welfare gain increases

– Price Social Optimum is Reached and

Quantity/Output Social Optimum is Reached

It depends on: the magnitude of the subsidy

Advertising could be used instead to promote Museums

Only if Ceteris Paribus is in place

Something we haven't done

Merit Goods and Demerit Goods:

• Under produced and Under consumed

e.g. Healthcare and Education

• Over produced and Over consumed

e.g. Tobacco, Alcohol and Gambling

Merit Good- a good that brings unanticipated benefits to its consumers, such that society believes that it should be consumed by individuals regardless of whether they have the means or the willingness to do so.

Museums:

Game

• Either: – I went to the museum and

learnt..– I went to the museum and

bought a...– I went to the museum and

had a positive externality of…– I went to the museum and

had a private benefit of…– A Museum itself might have

an increased _______________once it was subsidised

– Name a merit good…– Name a public good…– Draw a positive externality

graph

HWon

inspiringeconomics.blogspot.com

June 2014 unit 1 – question 9(e)