Provide any justification for government intervention in production and provision of public and private goods

Provide any justification for government intervention in production and provision of public and private goods

There are two types of goods which are public and private goods. Public goods can be defined as a goods that is non-rival and non-excludable whereby the consumption by one customer does not reduce the consumption of another customer (Investopedia, 2018). Public goods also cannot prevent anyone from consuming it. For instance, clean water, national defense and street lights. According to Musgrave (2014), the public goods is one of the tools that can correct market failure whereby this happened due to the free market fails to satisfy and allocate sufficient goods or services. Public goods also can help in improving economic welfare. For the private goods, an economist refers as rivalrous and excludable where a product that must be purchased to be consumed and consumption by one individual at a time (Investopedia, 2018). This is because the company’s goal of producing private goods is to make a profit. Thus, private goods are the use of goods by one prevents the use of the goods by another. The examples of private goods are food and clothing. Basically, to manage both of goods in term of production and provision it will be involving government intervention.

In the public goods, it can be seen in the direct provision of public goods by the government where it can help to overcome the free-rider problem which leads to market failure (Staff, 2018). The non-rival nature of consumption provides a strong case for the government rather than the market to provide and pay for public goods. The definition of the free-rider problem is the situation that difficult to charge people for benefitting from a good or service once it is provided (Staff, 2018). For example, the national defense's system which had been implemented by the government without paying anything but the benefit received was same. Many public goods are provided more or less free at the point of use and then paid out of general taxation or another general form of charge such as license fee. Taxes are compulsory charges imposed by the state on individuals and firms where from that it can raise revenue to finance state spending. For instance, the state provision is when the government supplies goods and services such as education, health and housing which the society believe that it should be provided to all consumers regardless of income. Thus, the cost of providing public goods or services is financed through taxation such as Value Added Tax (VAT) or Goods and Services Tax (GST) (Mansor, 2013). According to Former executive director of the Malaysian Institute Of Economic Research Prof Datuk Mohamed Abdul Kareem, GST is not only needed to raise more revenue but also diversify its sources of income (TheStarOnline, 2010). Besides, the taxpayers indirectly become fund state funding in the state provision. State provision also may help to prevent under-provision and under-consumption of public goods so that social welfare is improved. This was shown that the government intervention in the taxation can help in increasing sources of revenue.

A subsidy is one of the government interventions whereby a payment made by the government to producers or consumers to encourage production or consumption (Anomaly, 2015). This gives the benefit to the products and services because it can lower the price and raise output. Usually, the subsidies had been given on particular relevant on merit goods that generate significant positive externalities. It also reduces inequity because more of the poor people can able to have it. In Malaysia, the government had allocated billions of ringgit for subsidies on various sectors every year. In the budget 2018, it had been announced RM3.9 billion subsidies for transportation and goods such as cooking gas, oil and flour (TheStar, 2018).  This can be seen on how the government tries to help the consumer in term of private goods such as food. This is because when the subsidies had been given to the controlled product such as sugar, cooking oil and others, thus it will reduce the price of the food. Meanwhile, for the public goods it have several examples in term of transportation, education and healthcare. By referring to the statement by our former Prime Minister Datuk Sri Najib Razak said that the government has provided subsidies in term of services in the hospital which is the patient just need to pay the lowest cost. This is because RM 26.5 billion of subsidies had been allocated for the healthcare. To make it more clear, we can do a comparison between maternity care at semi-government hospitals and public hospitals where it cost about RM200 meanwhile in government only RM 10 (News Strait Times, 2018).  Moreover, since 2012 for public’s schools it had been waived with Government funding about 90%. For example, the fees for a medical education programme before the subsidy is RM 289,885 and after that, the students only need to pay a fee of RM 9000 during the course of study (News Strait Times, 2018). In contrast, the provision of governments in term of subsidies had given much more benefit to the public in enjoying the public goods and private goods.

Lastly, regulations and standards are also one of the initiatives taken by the government in order to control the production of the public and private goods (Martin, 2013). This happened in the non-market based policies where it involved direct state intervention in markets such as legally enforced by standards and regulations. Regulations are legally enforced rules sets by the government that restricts or ban specified activities. The potential of regulation is legally binding where it must adjust their behavior or risk prosecution. Within the power of the government, it had been set regulation and standards enforced by law such as under the Control of Supplies Act 1961 (Department Ministry of Domestic Trade and Consumer Affairs, 2016). For examples, the goods are sugar, milk and cooking oil. Regarding this, it was limited in the supplies towards the product and also the price had been controlled. The government will limit the highest and lowest price depending on the market. At this point, it will be more effective when the government takes the initiatives charges the cost of the fine greater than the benefits of ignoring a regulation (p. 45). Revenue from fines can be used to correct the cause of market failure or compensate to thing that had affected. Regulation can be passed quickly and have a rapid impact.

In conclusion, the role of government is very important especially in the production of both goods which are public and private goods. Within the government intervention, the provision that had been given also gives the good impact towards the public in benefiting the goods.

REFERENCES

1.      J. A. (2015). Figure 2f from: Irimia R, Gottschling M (2016) Taxonomic revision of    Rochefortia Sw. (Ehretiaceae, Boraginales). Biodiversity Data Journal 4: E7720. https://doi.org/10.3897/BDJ.4.e7720. Publics Goods and Government Action,14(2), 109-128. doi:10.3897/bdj.4.e7720.figure2f

2.      Public Goods and Market Failure | tutor2u Economics. (2017). Retrieved September 29, 2018, from   https://www.tutor2u.net/economics/reference/public-goods

3.      Online, T. S. (2018, February 18). Najib: Govt provides billions of ringgit in subsidies - Nation | The Star Online. Retrieved September 30, 2018, from https://www.thestar.com.my/news/nation/2018/02/18/najib-govt-provides-billions-of-ringgit-in-subsidies/

4.      Online, N.S.T (2018, February 22). Government provides numerous subsidies improve Malaysian. Retrieved September 30, 2018, from https://www.nst.com.my/news/nation/2018/02/338112/govt-provides-numerous-subsidies-improve-malaysians-lifestyles-najib

5.      Staff, I. (2018, June 30). Private Good. Retrieved September 30, 2018 from https://www.investopedia.com/terms/p/private-good.asp

6.      Staff, I. (2018, April 26). Free Rider Problem. Retrieved September 30, 2018 from https://www.investopedia.com/terms/f/free_rider_problem.asp

Contributors

NORHAZWANA BINTI MAT JAAFAR         2016437182

NORSHUHADA BINTI SHAHIDAN              2016421954

NUR ALYAA BINTI ROSLI       2016237132

NUR ATHIRAH BINTI ROSLAN        2016421668

NUR SHUHADAH BINTI MOHAMED FAUZI    2016421922