MERIT GOODS
Merit goods: goods which are provided in a free market, but are under consumed
Examples
health care, education, housing, pensions
These goods are underprovided in a free market because:
a) lack of information: healthy individuals are unaware
of when they will be ill in the future, and some people will therefore not take
out sufficient insurance to cover themselves when they fall ill. Similarly,
young people might not save enough for their future pensions
b) lack of income: some people might not have sufficient income to
purchase the right quantity of health care, or education
c) positive externalities: the consumption of merit goods generate
positive externalities which would be ignored in a free market.
Government intervention is needed to ensure that the right amount of these goods is consumed.