Merit goods

Question 1

What are merit goods and why are they considered merit goods

Answer 1

Merit goods= goods and services that the govt feel will be underconsumed if left to the free market.
-They have positive externalities/social benefits above the private benefits that aren’t considered by consumers

Question 2

Example of a merit good

Answer 2

Education- underconsumed because parents are unaware of the long term benefits eg higher salaries; they are put off by the short term costs, but education has social benefits such as lower crime rates and increased occupational mobility of labour force eg doctors, which benefit everyone

Question 3

Why do merit goods lead to market failure??

Answer 3

• Merit goods create positive externalities that arent recognised,
• they’re prone to information failures as some people believe the private costs exceed the private benefits (which might be true in the short term for education)
• uneven access to merit goods create inequality, consumption shouldn’t be based on income

Question 4

What’s the governments role in providing merit goods

Answer 4

• Provide merit goods for free at the time of use

- Subsidise merit goods