Economics Tuition As A Market Failure

Market failure is a chapter which is taught in every economics course. It refers to the failure of the free market to allocate resources efficiently or equitably. Market failure has been analysed in a large number of markets which include the markets for tobacco, alcohol, healthcare, education, etc. However, to the best of my knowledge, it has not been applied to the market for economics tuition.  Economics tuition is market failure as it will be under-consumed in the absence of government intervention due to external benefits in consumption and lack of perfect information about the beneficial effects.

Economics Tuition as a Market Failure due to External Benefits in Consumption

The consumption of economics tuition produces external benefits. Economics tuition is helpful to students as will substantially increase their understanding of the subject, assuming they get economics tuition from a good economics tutor. It is important that one finds a good economics tutor in order to reap the full benefits of economics tuition. With a good understanding of the subject, students will be able to contribute to the formulation of good economic policies in the future which is beneficial to the wider community. This means that the marginal social benefit is higher than the marginal private benefit. However, when consumers and producers make consumption and production decisions, they do not take into account externalities. Therefore, in the absence of government intervention, economics tuition will be under-consumed which will lead to deadweight loss. In reality, no government corrects the market failure of economics tuition. However, if a government wishes to correct the market failure which rises due to positive externalities, there are a few measures which it can use. For example, it can provide a subsidy to tuition centres for the provision of economics tuition. A subsidy on economics tuition will reduce the cost of production. When the cost of production falls, the supply will rise and this will lead to an increase in the quantity demanded which may correct the problem of under-consumption. However, providing a subsidy to an economics tutor who earns an income of hundreds of thousands of dollars a year can be very politically unpopular. Therefore, it is unlikely that such a measure will be used to correct the market failure of economics tuition.

Economics Tuition as a Market Failure due to Imperfect Information about the Beneficial Effects

Apart from positive externalities, economics tuition is also a market failure due to lack of perfect information about the beneficial effects. The consumption of economics tuition enhances students’ understanding of the key economic concepts which they need to master in order to excel in the examination. This is particularly true if they find an experienced economics tutor. It also enables them to better apply the concepts to answer examination questions. An experienced economics tutor is able to impart high-order answering skills to their students. However, many students do not fully realize these beneficial effects as therefore do not see a need to take economics tuition. This means that the perceived marginal private benefit of economics tuition is lower than the actual marginal private benefit. As a result, the equilibrium output level of economics tuition will be lower than the allocatively efficient level in the absence of government intervention which will lead to deadweight loss. If a government wishes to correct the market failure which rises due to imperfect information about the beneficial effects, there are a few measures which it can use. For example, it can use education through conducting campaigns in order to increase the awareness of the beneficial effects resulting from the consumption of economics tuition. The government can also publish a list of qualified economics tutors to increase the chances of a student finding a good economics tutor. This will bring the perceived marginal private benefit nearer to the actual marginal private benefit resulting in a reduction in the problem of under-consumption. However, it is not mandatory for students to respond to education and therefore the measure may not be effective.

Keith Quek

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