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Definitions.
Merit Good:

-Is an involuntary fee focused

on individuals or corpora8ons

that is enforced by a level of

government in order to nance

government ac8vi8es.
Subsidy:

-When the government pays the

suppliers to supply goods/

services at a lower price; with

the inten8on of increasing the

demand of a merit good-

making the merit good available

to low income ci8zens as well.

This usually occurs when there

is an excess demand and a

shortage of supplies.

Rihaab Tajmohamed 11R

EconHL: Mr.Elder

a)Using the concept of merit good, explain why

education and health care services are under provided
by the market.

In this essay I will be explaining what merit good is? and reason why educa8on
and health care services are under provided by the market. Firstly, I will dene the key
terms; Merit goods are goods or services that the government believe has a posi8ve
impact to the society .e.g. Educa8on and Health care. As merit goods have a posi8ve
inuence to the society, it is a posi8ve externality of consump8on; this is so because
the society benets posi8vely impacted by consuming the good or service. Merit good
is best understood using a graph (as shown below).

From the graph above, we no8ce that the health care and the educa8on market
is under provided. This is shown through the demand curves of MSB and MPB. Ideally,
the society needs the health care service at MSB (Popt-Qopt) however, the rms only
supply at MPB )Pe-Qe) which is much less than what the society wants and needs. Due
to such dierences between the society needs and rms contribu8on; a market failure is
created and so, the government intervene in hopes to correct such failures.



Typical reasons as to why merit goods as health care and educa8on arent
provided suciently in terms of mee8ng the social op8mal is due to several reasons.
Firstly, due to low levels of income and poverty; because some consumers may want to
obtain such goods- but their incomes come in the way from buying or obtaining such
goods in the market due to its expensive for the consumers to buy such goods and so,
such goods as educa8on and health care arent oRen shown in the market. Also,
consumer ignorance; because some consumers arent exposed or knowledgeable by the
benets of goods such as educa8on and health care they tend to demand less of such
goods and/ or services.
In conclusion, due to the fact that consumers either have low income or are
uneducated by the benets of educa8on and health care (that it has to the economy
and individuals as well) the market in most cases tend to produce less of such goods and
therefore are under provided by the market, and so the government intervenes in order
to make sure the society have access to educa8on and health care, as well as other
merit goods.