Market failure: Merit goods 2.5 / 5 based on 2 ratings ? EconomicsMarket failureASAll boards Created by: ChantallehelmCreated on: 20-12-12 14:37 What is a merit good? Goods or services provided free by the government for the benefit of society because if left to the market forces there may be under provision. 1 of 8 What is the main argument for under provision of merit goods? Failure of information. Not all consumers are aware of the long term benefits of consuming these goods and services. 2 of 8 What do merit goods often lead to? Positive externalities. 3 of 8 What are the three ways to increase provision of merit goods? 1.Direct provision, e.g schools. 2. Subsidised provision, e.g dentists. 3. Regulation, e.g car insurance. 4 of 8 Disadvantage of direct provision The cost to the taxpayer or governments may not supply enough of the good. 5 of 8 Disadvantage of subsidies This usually allows prices to be left to the market but the level of supply can be difficult to control. 6 of 8 Disadvantage of regulation There can still be under provision if consumers ignore the regulations. 7 of 8 Define demerit goods. A good which can harm or damage the consumer and can lead to negative externalities e.g cigarettes. 8 of 8
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