ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Consumers can be considered to under-consume merit goods (and over-consume demerit goods) due to an information failure. This happens because most consumers do not perceive quite how good or bad the good is for them: either they do not have the right information or lack relevant information.

Detailed explanation-2: -role of government budget The concept of merit goods assists governments in deciding which public or other goods should be supplied. Merit goods are commodities that the public sector provides free or cheaply because the government wishes to encourage their consumption.

Detailed explanation-3: -Examples of merit goods include education, health care, welfare services, housing, fire protection, refuse collection and public parks.

Detailed explanation-4: -A merit good is normally under-provided and under-consumed because of three factors: Imperfect Information. Presence of Positive consumption externalities. Poor decision making-takes into account short-run costs but ignores long-run benefits.