What are merit goods?

Merit goods are defined as goods that are under-consumed in a free market and are considered beneficial for society as a whole. This means that even though these goods can provide significant positive externalities—benefits that spill over to those who do not purchase or use them—individual consumers may not buy them in sufficient quantities because they either underestimate their value or do not have enough information about their benefits.

Examples of merit goods include education and healthcare. These services contribute to a more educated and healthier society, leading to lower crime rates, higher productivity, and overall better quality of life. Therefore, governments often intervene in the market for merit goods, either by providing them directly, subsidizing them, or promoting them through public programs to ensure that they are consumed in greater quantities than would occur in a purely free market situation.

The other options do not accurately encapsulate the concept of merit goods. While limited availability relates to supply constraints, it does not reflect the societal benefits that merit goods provide. Luxury items that are heavily taxed do not align with the definition, as they are not necessarily under-consumed goods that benefit society. Similarly, goods produced by monopolies concern market structure rather than the societal implications of consumption levels.