Information provision to correct market failure

Define information provision

Information provision is government funded advertising/ education/ provision to encourage or discourage consumption

Draw the effect of information provision on a merit good

Draw the effect of information provision on a de-merit good

Analysis of information provision

Better information provision will shift the MPB curve either up or down

Consumers now have better information about this good which allows them to make a rational decision with the true social and private benefits in mind

So they will consume the merit goods more and the demerit goods less

Leading to allocative efficiency and demand at the social optimum

Issues with information provision

To launch these advertisement campaigns it may cost a lot of money for the government - may be spent better elsewhere - opportunity cost

Economic agents may just ignore advertising and carry on under/ overconsuming this good or service resulting in wasted government funds

Information provision will have little short run effects instead taking a long time to change the populations opinions on a good or service so it is more long run

What is the major benefit with information provision

The fact that it is not a strict interventionist policy and there is limited consequences from using information provision