Merit goods are almost defined as those which would be under-consumed and under-produced in a free market economy, even though everyone regards them as "Good Things." They include education, medical insurance, unemployment insurance, nutritious foods and other goods or services that we all think are important but seem not to make essential in our consumption.
There are two main reasons:
1. Consumption of merit goods creates greater public benefit than the private benefit perceived by the individual. In other words, the community benefits more than the individual and so the individual takes them for granted. Consumers take into account only their private benefits when consuming merit goods, and these are not judged to be very high. As a result, they are under-consumed and so under-produced.
2. Individuals are short-sighted about their life requirements and the benefits for their children and later generations. Individuals tend to seek short-term maximum utility and do not consider the long term benefits of consuming merit goods. Therefore, they are under-consumed.
Now ask the question, who would willingly pay for education, preventative healthcare, unemployment insurance, old-age pensions, high-value food for kids, care for aged parents etc. if the state did not make some of these compulsory? All the evidence is that the human population does not possess the foresight or desire to make such provision.
That is why some governments [in Europe, Scandinavia, Netherlands, UK and some others] have decided to provide merit goods from taxation whether the taxpayer demand them or not.
Merit goods tend to be those that some consumers do not recognize as having the value that they actually have, and therefore under-consume them. Examples are education, nutritious foods and preventative health care.
While many people do see the value of these goods and seek to consume them at an optimum level, they can be expensive, and therefore people of limited economic means may also be unable to consume them at a level that would be most beneficial for society as a whole.
Some societies try to provide these goods to citizens without regard to their ability to pay, or subsidize their cost to help ensure people can get the amount that is socially beneficial.
A clear example is education. Left to just the parents to finance, high school education would be too expensive to afford for the average family and productivity would suffer.
Answers & Comments
Merit goods are almost defined as those which would be under-consumed and under-produced in a free market economy, even though everyone regards them as "Good Things." They include education, medical insurance, unemployment insurance, nutritious foods and other goods or services that we all think are important but seem not to make essential in our consumption.
There are two main reasons:
1. Consumption of merit goods creates greater public benefit than the private benefit perceived by the individual. In other words, the community benefits more than the individual and so the individual takes them for granted. Consumers take into account only their private benefits when consuming merit goods, and these are not judged to be very high. As a result, they are under-consumed and so under-produced.
2. Individuals are short-sighted about their life requirements and the benefits for their children and later generations. Individuals tend to seek short-term maximum utility and do not consider the long term benefits of consuming merit goods. Therefore, they are under-consumed.
Now ask the question, who would willingly pay for education, preventative healthcare, unemployment insurance, old-age pensions, high-value food for kids, care for aged parents etc. if the state did not make some of these compulsory? All the evidence is that the human population does not possess the foresight or desire to make such provision.
That is why some governments [in Europe, Scandinavia, Netherlands, UK and some others] have decided to provide merit goods from taxation whether the taxpayer demand them or not.
Merit goods tend to be those that some consumers do not recognize as having the value that they actually have, and therefore under-consume them. Examples are education, nutritious foods and preventative health care.
While many people do see the value of these goods and seek to consume them at an optimum level, they can be expensive, and therefore people of limited economic means may also be unable to consume them at a level that would be most beneficial for society as a whole.
Some societies try to provide these goods to citizens without regard to their ability to pay, or subsidize their cost to help ensure people can get the amount that is socially beneficial.
A clear example is education. Left to just the parents to finance, high school education would be too expensive to afford for the average family and productivity would suffer.