Background: The best way to run the economy is usually to let people produce and
consume goods without restrictions or government intervention. This interaction of
supply and demand in the market leads to an equilibrium at the point where marginal
benefits equal marginal costs. The power of market prices arising from this perfect
competition organizes production and consumption in a way that maximizes welfare,
so-called as Pareto-optimality. Yet, conditions are not always "perfect". There are things
that only government can do. This paper discusses the presence of public goods in
the health sector as an example where market fails to perform efficiently.
Subject and methods: This policy paper reviews micro-economic theories that
address public goods and private goods in the health sector. Empirical evidence is
presented to support (or to refute) the theories.
Results: A pure public good is a good or service, such as information that warns the
hazard of tobacco use, but the consumption of which by one person does not reduce
its availability to others in society, It is not possible to charge for a public good because
no one can be excluded from using them. and no one wants to charge for because it
does not cost anything to accommodate additional users. As such the public good
must be subsidized or provided by government if it is to be produced efficiently. The
government production of a public good also is advantageous because government
can assess taxes to pay for it.
Conclusions: This paper has discussed the policy issues concerning the provision
of public goods and regulation of private goods by the government. Firstly,the definitions
of public good and private good were explained, by citing relevant examples in the
health sector. The efficient level of provision of a public good, market failure due to
public goods, the rationale for government intervention. and privatization of public
goods. were then discussed along the remaining of the paper.
Keywords: perfect competition, public good, private good, government intervention,
health secto
