Examining Public Goods & Externalities Number

ExaminingPublic Goods &amp Externalities


ExaminingPublic Goods &amp Externalities

Amicro economic model seeks to explain the decision making process ofindividual consumers, households and firms in a market consideringscarcity of resources. The forces of demand and supply affect theequilibrium price whose changes create either a shortage or an excessin supply. On the other hand, rivalry and excludability aredistinguishing factors between private and public goods. Below is ananalysis of two phenomena whose operations are related tomicroeconomics and represent economic problems that are dealt with ineveryday life.

Effectof Reduced Tuition Fees

Thequestion on reduction of tuition fee to improve access to educationis very common and is used by politicians mainly for political gain.On the surface, it appears lucrative and has often worked to attracteducation-hungry citizens. However considering the working of a microeconomic model, the operations behind this proposal are put underscrutiny to establish its sustainability. The control over the amountof tuition fees has brought along a heated debate among the relevantstakeholders. There has been differing argument behind the initiativewhether to reduce or maintain the amount of tuition fees paid bystudents. However, the initiative is believed to have an economicimpact to the economy (McEachern, 2013).

Ina free market, the forces of demand and supply determine theequilibrium price. A change in the equilibrium price affects demandinversely and supply directly. In the short-run, a decrease in theequilibrium price increases demand hence reducing supply. There isshortage due to the increased demand and reduced supply. The shortagein supply causes an increase in price, which subsequently leads to areduction in demand and in the long run, the prices are pushed to theinitial equilibrium price.

Consideringthe working of a micro economy the change in tuition fee isequivalent to a change in price which is a determinant of demand.Therefore reducing tuition fee will have a positive impact onincreasing access to college education in the short run. Individualsfrom all income brackets will be able to have an opportunity tolearn. Concordia University in Minnesota reduced tuition fee by tenthousand dollars in the 2013-2014 academic year and subsequentlyincreased enrolment by thirteen per cent.

Equityin accessing higher education cannot be however attained by reducingtuition fee only, as there are other factors to consider. Reducedtuition fee will create excessive demand and given the scarceeducation resources, especially in public colleges/universities, somepotential students will be left out. Reduced scholarships and grantsdue to the reduced fees will also lock out some individuals whoseincome is still inefficient in accessing college education. Theincrease in taxes for higher education loans to students counter actsthe key essence of tuition fee reduction. Converse College reducedtuition fee by forty three per cent and this could lower its allureas an esteemed learning institution (McEachern, 2013).

Vaccination:A Public Good

Ineconomics, public goods are those that meet the non-excludability andnon-rivalry conditions. Non-excludability means that the consumptionof a good by one individual cannot exclude the next from consumingit. In the case of flu shots when a majority of the population getsthe vaccine the remaining population will still benefit whether ornot they receive it because of reduced infections. Non–rivalry onthe other hand means that the consumption of that good by anindividual leads to no subtraction of consumption by another(McEachern, 2013).

H1N1(swine flu) together with other types of influenza viruses can beprevented by providing vaccination. These flu shots are availed tothe public by most governments to control their spread inpopulations. Flu shots qualify as public goods because theirconsumption by one individual does not reduce the amount availablefor others (non-rivalry) and everyone is encouraged to partake of thevaccination (non-excludability). Vaccines impact the economypositively as they counter the cost of treatment which is relativelyexpensive. The flu shots are therefore a cheap way of reducing thecost of health.

Thegovernment through Centers for Disease Control and Prevention (CDC)is actively involved in protecting the health of citizens. Bysupporting production of vaccines and providing resources fordistribution the government guarantees availability of the flu shots.With the population over three hundred million, the governmentrecommends preventing the spread of influenza to ensure that healthfacilities are not stressed and also to reduce the cost of health.The vaccination also helps reduce mortality rates especially forinfants and the elderly (McEachern, 2013).

PrivateMarket for Vaccines

Flushots are availed for purchase throughout the year by pharmacies andhealth care providers. The private market however is inefficient inprevention of influenza because of the medical and social ignoranceattached to the flu shots. The private market does not recognize themedical implications of flu shots and only react when it is too late.There are also very many myths associated with vaccination andtherefore giving the private market the responsibility to decidewhether or not to receive the flu shots, would lead to inefficientoutcomes.

GovernmentInvolvement in Vaccinations

Whenthere is disease outbreak the government feels the greatest impactand therefore is the main stakeholder as far as the health ofcitizens is concerned. Therefore the government should investresources into health to ensure that diseases are under control. Toensure sustainability of these vaccines the government should supportthe manufacturers by funding them and also by creating conduciveenvironments for their operations. This can be done by offeringsubsidies and encouraging research. By supporting the manufacturerswho are at the base of the vaccination chain, the government willensure availability of enough vaccines to all of its citizens(McEachern, 2013).

Privateand Public Goods

Aprivate good has a direct relation to the consumer hence it isexcludable and rivalrous. Food items are the best examples of privategoods. Consumption of food by one party reduces its availabilityhence it is rivalries. Food is also excludable in that theconsumption by one party limits the other as it is exclusive. Apublic good has both properties of non-excludability and non-rivalry.A good example of a public good is air. Whereas air is consumed byeveryone this does not reduce its availability hence its non-rivalrycharacteristic. Consumption of air by one individual does notrestrict the consumption of another individual and therefore it isnon-excludable thus a public good (McEachern, 2013).

Inconclusion, Micro economic models are important tools for strategicplanning. The theories analyzed in micro economics help in futureforecasting and represent daily occurrences. The reasoning behind allphenomena is associated with economics and therefore these theoriesshould be employed by all systems including the government and theassumptions provided should be utilized to guide decisions in allaspects of life. This will not only ensure sustainability in terms ofresources given their scarcity in nature, but will also maximizeutility.


McEachern, W. A. (2013). Microeconomics: AContemporary Introduction (9th ed.). Cengage

Learning. Retrieved January 1, 1988