Merit goods are goods or services that are considered to be beneficial to individuals and society as a whole, but are often under-consumed in a free market economy. They are commodities that the public sector provides free or cheaply because the government wishes to encourage their consumption. Merit goods are those goods and services that the government feels that people will under-consume, and which ought to be subsidized or provided free at the point of use so that consumption does not depend primarily on the ability to pay for the good or service. A merit good is a good which when consumed provides external benefits, although these may not be fully recognized – hence the good is under-consumed.
Examples of merit goods include education, healthcare services, public transportation, and renewable energy. Healthcare is an example of a merit good because it provides benefits to both individuals and society as a whole, and individuals may not consume it in optimal quantities. Education is also a merit good because it has positive externalities associated with it, such as increased productivity and reduced crime rates.
