Is Education A Market Failure?
Market failure is commonly defined as the failure of the free market, which is also known as an unregulated market where there is no government intervention, to achieve an efficient allocation of resources. In some economics textbooks, the definition of market includes the failure of the free market to distribute goods and services equitably. Students can consult their economics tutor Singapore in their economics tuition Singapore class for a definition of market failure used by the examiners. Education, among some other goods, is often used as an example of market failure and correctly so. In this article, I will provide an exposition of the market failure of education.
The Cause of the Market Failure of Education
In the absence of government intervention, consumers will under-consume education. The problem of under-consumption of education occurs to two main reasons, namely external benefits and imperfect information about the beneficial effects. Students can approach their economics tutor Singapore in their economics tuition Singapore class for an explanation of the concepts of external benefits and imperfect information about the beneficial effects. External benefits, which are also commonly known as positive externalities and third-party benefits, are the benefits experienced by the consumers or producers who are not involved in the consumption or the production of the good. Education produces third-party benefits in consumption. This is because consumption of education will increase the skills and knowledge of workers which will lead to an increase in their productivity. Students can learn more about labour productivity from their economics tutor Singapore in their economics tuition Singapore class. An increase in labour productivity in the economy will lead to a fall in the cost of production in the economy which will attract foreign direct investment and this will benefit the economy. Due to the third-party benefits, the marginal social benefits are higher than the marginal private benefits. As a result of the divergence, and the fact that consumers and producers do not take third-party benefits into consideration when they make consumption and production decisions, education will be under-consumed in the government intervention. In addition to third-party benefits, education is also subject to the problem of information failure. More specifically, people do not fully realize the private benefits resulting from consumption of education. Such information failure, which will cause the marginal private benefit of education which is perceived by consumers to be lower than the actual marginal private benefit, will also lead to under-consumption of education.
The Four Levels of Education
There are basically four levels of education in Singapore namely, primary school education, secondary school education, pre-university education and university education. Among other things, the four levels of education differ in terms of the external benefits which they produce. Higher levels of education focus on specialized skills and specialized areas of knowledge which will lead to a rise in labour productivity in the economy. Students can find out more about the link between specialization and labour productivity from their economics tutor Singapore in their economics tuition Singapore class. The resultant fall in the cost of production in the economy will lead to an increase in foreign direct investments. Lower levels of education focus on literacy skills, numeracy skills, civic-mindedness, culture and history. The resultant rise in social cohesion will lead to a decrease in social problems. Students can enroll in an economics tuition Singapore class to learn about the link between social cohesion and social problems from an economics tutor Singapore. As all the four levels of education produce external benefits, they are all market failures. The severity of the market failure of each level of education varies from country to country and this will be discussed in greater detail in the economics tuition Singapore class conducted by Mr Edmund Quek who is the economics tutor Singapore at Economics Cafe Learning Centre.
Edmund Quek
Economics Tuition Singapore @ Economics Cafe
Principal Economics Tutor: Mr. Edmund Quek