Provision of Information | A-Level Economics Model Paragraph
Discuss the Effect of Provision of Information on a Market with Positive Externalities
One way the government could intervene to correct the under-consumption of bicycle helmets is through provision of information. In the free markets, the externalities caused by not wearing a helmet are likely to be ignored. Therefore, the government could run an advertising campaign about bicycle safety through schools, leaflets, or advertising boards. The first diagram below shows that bike helmets are under-consumed and the government intervention would need to encourage greater consumption (q) of bike helmets. The second diagram above shows the effect that the government would target from their advertising campaign. It shows that there is an increase in demand. Demand is the number of goods and services that consumers are willing and able to buy at each given price. Advertising is one of the non-price factors that affect the demand curve so in theory there should be an increase in demand, which also leads to an increase in the equilibrium quantity from q to q1 which means that we get closer to q* which is the socially optimal quantity in this market.
However, there is a risk of government failure, which is the possibility that government resources get wasted and there is still a misallocation of resources. For example, there is a large opportunity cost associated with setting up a national information campaign. The government should be certain that the size of the externalities are worth spending a large budget to solve, and that it would be solved successfully. Secondly, there is a chance that information will not be a big enouugh incentive for consumers to purchase and carry bike helmets with them at all times. There is a big increase in the usage of Lime bikes in London and many customers prefer to use them for short-rides despite not owning a helmet. If the advertising is ignored, there would not be a signficant enough shift in demand and therefore the market failure would still exist.
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