AQA Economics : Unit 1: Markets and Market Failure – January 2012
‘. . . the provision of speed cameras is a source of government failure’ (Extract E, line 20).
Using the data and your economic knowledge, evaluate this view.
Government failure occurs when government intervention causes inefficiency in resource allocation and produces an unsatisfactory outcome. Some may argue that speed cameras are a merit good, due to the positive externalities that arise from the use of them. This is because being a merit good they produce positive externalities; their marginal social benefits are greater than their marginal private benefits. Yet, others may argue that speed cameras actually cause more accidents and that they are only used as a source of revenue for the Government which implies speed cameras as a demerit good. Therefore, their marginal social cost is greater than their marginal private cost due to the ‘artificial change in behaviour’ causing a negative externality. Speed cameras are inevitably in place to make cars not over speed – some may argue they are there are money raising schemes or as a genuine attempt to save lives.
Some people may argue that speed cameras result in positive externalities therefore is not a source of government failure. This is because if a motorist spots a speed camera, then they will want to not receive the fine associated with speeding (even if it is only a couple of miles per hour over the limit) and therefore reduces their speed. This in turn means that a slower car will reduce accidents due to increased reaction time and less damage upon impact if they did cause and accident. As stated in Extract E, a study by the HSCP claims that a ‘1mph reduction in speed leads to a 5% reduction in accidents’. This therefore implies that the marginal social benefit is greater than its private benefit (seen in diagram 1.1) – as there will greater external benefits such as less of police time wasted and the cost of other emergency services will not be added. This means that the social benefit which is the MSB = Marginal Private Benefit + Marginal External Benefit- is greater and other members of society will benefit. This is supported by Extract E which also states how the external cost of traffic accidents can be as much as ‘£1 253 140’ for each serious accident, which shows the external benefits derived from speed cameras. Therefore, some people may argue that due to them being a merit good as they reduce the negative externalities of an accident, and as it states in the diagram, if government intervention would not be made only Q1 (at the MPB) would be produced and not Q2 (the socially optimum level), therefore government intervention must be made which they have done with using speed cameras.