Why is Education Underprovided in Our Society?
With university fast approaching, a nagging voice labelled tuition fees has started to grow in the back of my mind. The pursuit of higher-education often comes at a very high cost to the individual, in the form of student debts that can take quite a long time to pay off after graduation, and this is one of the major reasons why this type of merit good is under consumed and under provided. A merit good is a good that provides benefits for its consumers and society as a whole, the latter being a positive externality. In the case of education, the positive external benefits to society is the fact that there will be a greater supply of high-quality workers in the economy. As we know from macroeconomics, this translates to growth in a country's long-run potential, represented diagrammatically by the long run aggregate supply curve. However, a characteristic of merit goods is that they tend to be overpriced and under consumed. Here are a few reasons why: they generate positive extern...