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Summary Chapter 10 - Social Services
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Chapter 10 - Social Services
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CHAPTER 10Social Services
10.1 Arguments for Government Intervention in Education and Healthcare
Healthcare and education → mixed goods and services (display both
characteristics of private and public goods) → can be supplied by private or
public sector.
o Explains public and private schools and hospitals in SA
o Private firms → can be profitable and provide education ad healthcare →
is it necessary for the public provision of these services to be financed?
Both services → characterized by market failures → prompts government
intervention
o Take into considerations → SA constitution → education and healthcare
services are inextricably linked to guaranteed basic human rights.
10.1.1 Education
Externalities, Information Problems and Capital Market Failures cause allocative
inefficiencies in education markets
Equity considerations further strengthen the case for government intervention in
such markets.
Provides external benefits → free dissemination of valuable information and
decreased birth rates and crime levels (reduce pressure on government
spending)
o Societal benefits to others are not considered when deciding to invest in
human capital (education services)
o Failure to consider societal benefits → leads to market failure
(underproving and under-pricing education services)
o Demonstrated how policymakers use Pigouvian subsidies → internalise
externalities and increase allocative efficiency.
, Human capital theory: spending on education and training by individuals =
investments in human capital (characteristics that determine productivity of
workers – knowledge and skills)
o Focuses on → financial aspects of the decision to invest in human capital
→ based on the direct costs and indirect against potential future benefits
of securing higher paying future employment.
Direct costs → tuition fees, books, transport, accommodation.
Indirect costs (opportunity costs) → earnings foregone while
accumulating the human capital.
Graph Analysis:
Graph 1 → represents the private costs and benefits of investing in education
for an uneducated worker.
Received no schooling and started working at age 6 and retired at
62.
Avoided direct and opportunity costs of education
Have a long career in paid employment → starting ages are
relatively low and earning grow at a slow rate
Progression to higher-paying jobs often depends on
academic qualifications.
Graph 2 → represents the private costs and benefits of investing in education
for an educated worker.
Attended school; from age 6 and began working at age 22 →
obtained tertiary academic qualification
Negative curve throughout schooling = incurring costs.
Direct and indirect costs are incurred while studying and
have fewer year in paid employment compared to those
in graph.
Have higher starting ages and steeper growth of earnings
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