Definition
- Merit good
- A merit good is a good that a free market under-consumes, because buyers underestimate its benefit to themselves or ignore its benefit to others.
- Not to be confused with: Demerit good
- A demerit good is a good that a free market over-consumes, because buyers underestimate its harm to themselves or ignore its cost to others.
Example
Can you think of a merit good someone might go without, even though its full benefit is more than it costs?
A flu jab costs £15 to give. Priya values it at £12, so she goes without. It would also spare her flatmates an illness they would pay £8 to avoid, so its full benefit is £20, which is £5 more than it costs. Free jabs, as the NHS offers people most at risk, close the gap.
Test yourself
What is the difference between merit good and demerit good?
A merit good is under-consumed by a free market; a demerit good is over-consumed.