MF- Merit Goods

Question 1

What are merit goods

Answer 1

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

Question 2

Who provides merit goods

Answer 2

Both the state and the private sector

Question 3

Why don’t individuals act in their own interest when consuming merit goods

Answer 3

Imperfect information- they do not fully understand the private benefits of their consumption

Question 4

What are the characteristics of merit goods

Answer 4

Rival, excludable and rejectable

Question 5

What externalities are associated with merit goods

Answer 5

Positive externalities of consumption (social benefits exceed the private benefits of consumption)

Question 6

A merit good is a product that ..

Answer 6

Society values and judges that people should have regardless of their ability to pay.

Question 7

Examples of a merit good

Answer 7

Health services, contraception, education, work training programmes

Question 8

Education of a merit good

Answer 8

• parents may be unaware of the longer term benefits
• it is a long term investment decision
• gov investment can = higher level research that can add to the long run trend rate of growth

Question 9

Why does the government provide merit goods and services?

Answer 9

• to encourage consumption
• to overcome the information failures linked to merit goods
• on grounds of equity- the gov believes that consumption should not be based on ability to pay

Question 10

Link to information failure

Answer 10

Individuals may have imperfect information about their own private benefits. If they have better information on the benefits, the MPB curve would shift outwards leading to a higher equilibrium quantity.