Merit goods are

Merit goods are

• A. Goods with negative externalities that are over-consumed
• B. Goods under-consumed due to information gaps or positive externalities
• C. Goods with no externalities
• D. Goods always consumed by government

Answer: (B)

Merit goods are goods with positive external benefits, meaning society gains more from people consuming them than the private buyer accounts for in the price. Because these extra benefits aren’t fully reflected in the market, individuals may undervalue or be unaware of their true value, leading to under-consumption. Government intervention—such as subsidies or provision—aims to raise consumption to a socially desirable level. That’s why the statement that merit goods are under-consumed due to information gaps or positive externalities best describes them. They’re not defined by negative externalities or by having no externalities, and while governments often promote merit goods, they aren’t always the ones who end up consuming them.

Merit goods are goods with positive external benefits, meaning society gains more from people consuming them than the private buyer accounts for in the price. Because these extra benefits aren’t fully reflected in the market, individuals may undervalue or be unaware of their true value, leading to under-consumption. Government intervention—such as subsidies or provision—aims to raise consumption to a socially desirable level. That’s why the statement that merit goods are under-consumed due to information gaps or positive externalities best describes them. They’re not defined by negative externalities or by having no externalities, and while governments often promote merit goods, they aren’t always the ones who end up consuming them.