JC Economics Education & Government Intervention Essay Model Answers
Similar to healthcare, the market for education is an example of market failure, namely allocative inefficiency. Without government intervention, education is easily under consumed, and hence is a clear example of a Positive Externality in Consumption.
By now, you can actually guess that there are almost limitless types of externalities, both positive and negative! The best part is, it is also the most frequently tested type of Market Failure in your essay exam questions. For instance, just for pollution alone, we may face air, land, water and even noise pollution), alongside congestion, healthcare, e-scooter riding, deforestation, etc, especially case studies (equally true for H1 Economics candidates).
Here is a question modified from past year UCLES – SEAB exam question.
Discuss whether the Singapore government currently adopts the most ideal economic policies in the provision of vaccination / housing / masks / education / healthcare. 
(We focus on education in S’pore in this sample, but the essay treatment is the same for all context listed above.)
JC Economics Essay – Positive Externality in Consumption for Education
Education → merit good. Hence market fails therefore need for govt intervention
Reasons for market failure in the market for education
State aim of government intervention:
→ achieve allocative efficiency by increasing consumption towards socially optimal
→ ensure equity: equal access to public education.
Education is a merit good in which government deems to be inherently desirable and that will be under-consumed if left to market due to the existence of information failure and positive externalities.
(2 MF will do. Can also choose other types of MF.)
Lack of information may lead people to undervalue private benefits of education. For instance, people may underestimate the increase in potential earnings should they pursue higher education. Hence market demand for education is lower than if there is accurate valuation, given full information. This may lead to under consumption of education.
External benefits in education not considered. Private benefits of education include increase in potential future earnings that a more educated person university graduate would earn. External benefits of education include increase in labour productivity that would increase the international competitiveness/growth of the economy and increased earnings of labour force and the tax revenue for govt → MSB > MPB. With the help of a diagram, explain how the existence of external benefit in consumption leads to underconsumption of education.
(Note: Do explain the divergence between private and social benefits clearly.)
Figure 1 illustrates the problem of external benefit in consumption. Since the market only registers private benefit, the market output is OQ1 where MPB = MPC. However, if external benefit of consumption is considered, then MSB> MPB. Then the socially efficient output is OQ2 where MSB = MSC. At this level, society’s welfare is maximised. There is thus underproduction and underconsumption of Q1Q2 of education.
Underconsuming Q1Q2 level of education results in welfare loss equal to the area E1E2B as total benefit of BQ1Q2E2 exceeds the total cost of E1Q1QE2. Hence, there is need for govt. intervention to increase consumption to the socially optimum level
JC Economics Essay – Government Intervention to Correct Market Failure in Market for Education
Gov Provision: (NOT Direct Provision)
The government operates alongside the private sector to provide the merit good. In Singapore, both the public and the private sectors provide education services. Education can be broadly divided into public schools and private education. Private education in Singapore is left largely to the free market.
Govt provision makes up for the shortfall in supply (under-production by private sector) increasing accessibility to public education hence increasing consumption of education nearer to socially optimal level and ensures that education is provided at affordable prices for all, including the lower income, reducing inequity.
It is difficult to gather enough information so as to estimate the right amount of education goods to provide. Also, need to be financed through taxes. As the population ages and with conflicting requirements for government funding, direct provision of education places an increasing burden on the government budget.
Subsidy to all students regardless of income
➜ In Singapore, undergraduates pay about 25% of the tuition fee for their university education while the gov pays 75% via the tuition grant scheme (SS shifts right). To ensure that no deserving student in Singapore is denied the opportunity of education on grounds of financial difficulties, there are other financial schemes offered to lower income households. These include scholarship, bursaries, financial assistance scheme and Edusave etc.
(DD shifts right). With reference to a diagram, explain how the granting of tuition grant to all students reduces cost of education (SS of education shift right) may lead to optimal consumption of university education.
(Note: this point on changing is NT necessary. May omit)
Why it is appropriate: Easy to implement and no need for excessive monitoring, freeing up government resources to more productive uses.
Inadequate information may result in a subsidy that is either too high or low a level. This means allocative efficiency may not be restored in the market as a result of govt intervention. Subsidization by the state involves a high level of taxation. Higher taxes would have disincentive effects on work, investment and hence adverse effects on economic growth of the country.
Works well for ensuring equity. However, ends up subsiding learners from high income families too.
Government has also use regulation to ensure that a certain amount of education is consumed by making it compulsory for parents to enrol their children in primary schools (Compulsory Education Act). Essentially, it is to combat info failure as edu is a merit good. Govt draws up legislation, put in place measures to ensure compliance, take law breakers to task → Fear of punitive measures ensure that parents send their children to school, increasing demand and hence no. of educated residents towards socially optimal.
Why it is appropriate: S’pore being a general law abiding country, legislation may result in more people complying and simple and easy to understand and relatively easy to administer.
Laws are blunt instruments and require costly monitoring and enforcement →need substantial (political) will and resources (manpower) to police and enforce.
How effective legislations are depend on the severity of the penalty and how vigilant it is enforced.
JC Economics Essay – Evaluation of Government Policies in Market for Education
EV: may attempt to FINE TUNE the policies.
To ensure no wastage:, may choose to stagger subsidies rates, based on incomes.
Use of Mean-testing
The govt of Singapore may consider the use of means testing to award subsidy for university education to students from poor income households. Means testing is a process of evaluating people’s ability to buy goods, pay taxes or receive benefits. It is normally done in terms of income. It has the advantage of awarding those who deserve it and hence can lead to more efficient use of govt revenue.
(Can also include comparison of other indicators such as unemployment rate, household income and Gini coefficient between S’pore and other economies to arrive at a reasoned judgement)
However, may not choose to do so. SG Gov may still choose to subsides sufficiently, as education can also help to achieve MACRO goals of economic growth.
With labour being a strategic resource, it is important for the government to implement appropriate policies in the education sector so as to ensure high labour productivity. This is critical in maintaining our competitiveness in the international market and sustaining growth.
Relate to empirical evidence in order to judge the appropriateness of the current policies adopted: →Noting the high literacy rate in S’pore compared to the rest of the Asian countries, the current policies have indeed been appropriate.
The current strategy of the govt – a basket of measures is adopted to address both the efficiency and inequity issues in education market. Given the evolving needs of the society, these measures can be improved by provision of information. Govt may also want to consider the provision of information (via campaigns, fairs, talks, media, etc) in terms of private benefits of education to increase consumption.
The Singapore government currently adopts the most appropriate economic policies in the provision of education.
Not necessary to place the policies, however, may choose to fine-tune and revise the policies over time..
Remarks by JC Econs Tutor:
1. Many MF in this market. Choose any 2 or 3. -VE EXT cannot be omitted. Also choose info failure and equity. May even choose market dominance ( do not choose if you are not comfy with Market Structures)
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