Merit and demerit goods

Question 1

define merit goods

Answer 1

goods and services the government feels people will under-consume, and which might be subsidised or provided free at the point of use

Question 2

what externalities do merit goods produce?

Answer 2

positive externalities- merit good is a product that society values

Question 3

can merit goods be rival, excludable and rejectable?

Answer 3

yes

Question 4

reasons for under-consumption of merit goods?

Answer 4

information failure- the consumers do not understand the private benefits of their consumption

Question 5

examples of merit goods

Answer 5

health programmes
public libraries
early years education
free school meals

Question 6

differences between merit and public goods:

Answer 6

merit goods:
-provided by both public and private sector
-limited in supply
-rival in consumption
-excludable
-rejectable

public goods:
-normally funded and provided by government
-unconstrained in supply
-non-rival in consumption
-non-excludable
-non-rejectable

Question 7

solutions to market failure associated with merit goods

Answer 7

-subsidise
-regulate
-maximum price (a cap)
-provide financial incentives
-government should provide it (free at the point of use)
-provide information
-leave to the market to self regulate (do nothing)