CA Foundation · Business Economics · Public Finance
Which of the following best describes a 'merit good' in the context of public finance?
A merit good is one that society feels everyone should have irrespective of ability to pay, such as education or health care. Markets tend to under-provide it, so governments subsidise or supply it directly. A non-rival, non-excludable good is a public good instead.
- AA good that is non-rival and non-excludable in consumption
- BA good that society believes everyone should have regardless of ability to pay, and which the market tends to under-provideCorrect
- CA good whose consumption imposes harm on third parties
- DA good supplied only by a monopoly firm
Explanation
Merit goods such as education and immunisation are considered desirable for all, and left to the market they are under-consumed, so the government subsidises or provides them. Option A describes a pure public good, not a merit good. Option C describes a demerit good or negative externality.
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