Market failure has four major causes, one being lack of public goods. Explain why lack of...
Market failure has four major causes, one being lack of public goods. Explain why lack of public goods increases income inequality by raising prices of private goods (think along the lines of demand and supply)
Homework Answers
The lack of public goods such as education, health care etc. Will prompt the individuals in the economy to search for these goods in the private market.
When the demand for these goods increase in the private market, the price of such goods increase.
Only those who are able pay the price and now able to buy these goods. Many individuals will be excluded from the market.
Now, exclusion from the access of health care or education will affect the skill development of the individuals. Those who were alredy able to afford the education in the private market, will enhance their skills furthur and hence will become capable of earning even more.
Those who were excluded will now be unskilled and hence will be eligible for low paid jobs only.
Thus, lack of public goods can promote income inequality.
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