Provision of information | A-Level Economics Model Paragraph
Provision of information
One way the government could intervene in the market for cycling is through provision of information. The market for cycling has positive externalities in consumption, as cyclists under-value the full benefit of their choice, both to their own health and to wider society through reduced traffic congestion and lower pollution. The government could provide information through public health campaigns, highlighting the fitness and long-term health benefits of regular cycling. As people become more aware of these benefits, their perceived benefit from cycling rises, causing demand to shift to the right. This results in a higher equilibrium quantity, moving the market closer to the socially optimal level of output.
However, there is a large opportunity cost associated with setting up a national information campaign. The government would have to consider the value of the next best alternative, as spending on these advertising campaigns might mean that the government have to cut spending in other areas such as education or healthcare. The government should be confident on the effect of the information campaigns on demand, and that it won't be a waste of their budget.
However, there is a chance that the information provided will be ignored by consumers if it is not presented carefully enough, meaning there may not be enough of a change in consumer behaviour, as they might not be able to see the value in the extra benefit of taking up the activity. Behavioural economics also teaches us that consumers do not always make rational decisions, as they suffer from bounded rationality. Consumers have a limited ability to process and act on information, due to habitual behaviour and a poor capacity to absorb new information.
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