4.1.8.4 What policies would help increase positive consumption externalities?

subsidies, education, direct provision

What policies would help increase positive consumption externalities?

more affordability increases consumption depends if subsidy is large enough, political popular

advantages of a subsidy

governments subsidise COVID-19 vaccines to make them free or cheap for the public

Application for subsidies

expensive for the government, firms may become dependent on subsidies and less efficient

Disadvantages of subsidies

increases the perceived marginal private benefit

What does education do?

UK “5-a-day” promotes healthy eating

Application for education

long-term impact(permanent behaviour change), cheaper than subsidies

Advantages of education

slow effect(takes time to change habits), not always effective depends if people learn

Disadvantages of education

direct provision

government directly provides the goods for free or at a low cost

Luxemburg made public transport free in 2020

Application for direct provision

ensures consumption reaches socially optimal level, helps lower income groups access essential goods

advantages of direct provision

very expensive, may lead to overuse or inefficiency(i.e. overcrowded transport)

disadvantages of direct provision