State provision occurs when the government choose to provide goods and services free of charge, to correct a market failure. For example, dental care is a service that has positive externalities in consumption. If left to the free market, it would be under-consumed because people would ignore the fact that people who get regular checkups will healthier teeth are able to have a benefit on third parties, such as them being less likely to be absent at school or work due to teeth pain or health issues. The government could provide dental care free of charge via the NHS.
The diagram shows that the government may research the socially optimal quantity and provide that quantity of dental care free of charge, as shown by the quantity q1. The benefit of this is the increase from the equilibrium quantity which would have been provided by the free market, which means that more people have access to reliable dental care free of charge (p0), which should mean that the market failure has been resolved by the government.
However, the two downsides of using state provision as a method of government intervention are the substantial opportunity cost and the distortion caused to the market. These are both sources of government failure. Opportunity cost is the value of the next best alternative - and all the money saved on providing dental care free of charge could have been used on other services such as general NHS healthcare, or education. This funding would allow the NHS to work on dental emergencies, or better levels of education would lead to people taking greater care of their teeth and overall health - or being more educated could also allow people to earn greater incomes which can be used to pay for their own dental care easily. Secondly, at the price p0, there is an excess demand as shown by the gap between q1 and q2. This means that there will be large waiting times or backlogs of people wanting to visit the dentist. Overall, this could lead to rushed services or poor quality. We see with other state provided services in the form of large class sizes at schools, or with long wait times at the A&E.