How do merit goods differ from public goods?

Merit goods differ from public goods as they are privately provided but their consumption is deemed beneficial for society.

Merit goods are goods and services that the government feels people will under-consume, and which ought to be subsidised 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. These goods have two essential characteristics: they are non-excludable and non-rivalrous. Non-excludable means that once they are provided, it is impossible to prevent people from gaining access to them. Non-rivalrous means that the consumption of the good by one individual does not reduce the amount available for consumption by others. Examples of merit goods include education, health services, and social housing.

On the other hand, public goods are goods that are both non-excludable and non-rivalrous. This means that individuals cannot be effectively excluded from using them, and use by one individual does not reduce the good’s availability to others. Examples of public goods include street lighting, public parks, and national defence. The provision of public goods is a key role of the state or government.

The main difference between merit goods and public goods lies in their provision and consumption. Merit goods are often provided by the private sector but are under-consumed due to factors such as lack of information or the inability to pay. The government steps in to ensure that these goods are consumed in the right quantities because they bring additional benefits to society. Public goods, however, are typically provided by the government because the private sector would not provide them at all, due to the inability to charge individuals directly for their use.

IB Economics Tutor Summary: Merit goods, like education and health services, are important for society and often under-consumed, so the government helps provide or subsidise them. Public goods are things like street lights and national defence, which everyone can use without reducing their availability to others. The main difference is in how they're provided and consumed, with the government playing a key role in both cases.