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‘In the UK 7% of children are privately educated compared with 24% in Japan.Evaluate whether the provision of education should be left solely to market forces.’ [25 marks]Education is a merit good. A merit good or service is a product that has positive externalities in consumption. A merit good is under consumed when it is provided by the free market. This means that it should be subsidised or provided free so that consumption does not depend on the ability to pay for it. Education should therefore be consumed by all children in the UK and Japan. Because education is a merit good, if it was provided by the free market It would be under consumed and therefore would be under provided. This may be because consumers do not realise the external benefits of it. The positive externalities of education is lower unemployment in the economy, higher productivity and therefore higher GDP growth. or it may be because consumers cannot afford the free market price and are being priced out of the market. In reality, if education was only provided by the free market, not all children would benefit from it as not all of them would be able to pay. -6350038100MSC = MPCThis graph shows the positive externalities of consumption of education. The external benefits of education are shown by the difference of MPB and MSB. At point A, where MPB crosses MPC. This would be the amount of education provided by the market. Point A shows under consumption and under provision. This is because the market is ignoring the external benefits. Point B is the socially optimum level of education as this is where the MSC crosses the MSB. There is a welfare loss of ABC that is due to the under consumption of education if it left solely to market forces. Therefore, the provision of education should not be left to market forces. Since there is no profit incentive for state schools there is no incentive for them to increase the quality of their education. However, if education was left to market forces it would lead to productive efficiency. This would be because the schools would compete to keep prices down. The quality of education in the country could be better as the schools would invest heavily into the education they provide to attract more parents to send their children there. Private schools will also try and make themselves stand out. This would encourage diversification by having different approaches to education. The provision of education should not be left solely to market forces as this would lead to an under consumption and under provision of education. There would be a welfare loss to society which can only be reduced by the consumption and production of more education which will only happen if the government intervenes. ................
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