What defines merit goods?

Merit goods are defined as goods that provide significant benefits to individuals and society as a whole, but are often under-consumed in the free market. The premise behind merit goods is that individuals may not fully appreciate or recognize the value and benefits these goods bring, leading to lower consumption levels than what would be socially optimal. Examples of merit goods include education and healthcare, which contribute to better social outcomes, increased productivity, and improved public health.

The aspect of being under-consumed is crucial; even if these goods have high societal value, individuals may overlook their importance or lack the resources to access them. Therefore, public provision or subsidization often occurs to encourage consumption to reach a level that is deemed beneficial for society. Recognizing merit goods is essential in economics, as it helps to justify government intervention to promote the consumption of these beneficial products.