Question

Consider the following statement with references to ‘merit goods and services’.

• A. These goods and services are ought to be taxed at the rate to prevent over consumption.
• B. These goods and services are ought to be subsidized or provided free so that consumption does not depend primarily on the ability to pay
• C. A good which harms the consumer
• D. Those goods and services which have negative externalities

Answer 1

The correct option is B These goods and services are ought to be subsidized or provided free so that consumption does not depend primarily on the ability to pay

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. Both the state and private sector provide merit goods & services. We have an independent education system and people can buy private health care insurance.
Negative externalities occur when production and/or consumption impose external costs on third parties outside of the market for which no appropriate compensation is paid. This causes social costs to exceed private costs.