Merit goods are distinct from public goods in that they are typically provided by the private sector, yet their consumption is considered advantageous for society.

Merit goods are defined as goods and services that the government believes will be under-consumed. To address this, they are often subsidized or provided free at the point of use, ensuring that consumption does not primarily depend on individuals’ ability to pay. These goods possess two key characteristics: they are non-excludable and non-rivalrous. Non-excludable means that once a merit good is provided, it is impossible to prevent individuals from accessing it. Non-rivalrous means that one person’s consumption of the good does not diminish the availability of the good for others. Common examples of merit goods include education, health services, and social housing.

In contrast, public goods are characterized as both non-excludable and non-rivalrous. This means that individuals cannot be effectively excluded from utilizing them, and one person’s use of the good does not reduce its availability for others. Examples of public goods include street lighting, public parks, and national defense. The provision of public goods is primarily the responsibility of the state or government.

The primary distinction between merit goods and public goods lies in their provision and consumption patterns. Merit goods are often supplied by the private sector but tend to be under-consumed due to reasons such as lack of information or individuals’ inability to pay. Consequently, the government intervenes to ensure that these goods are consumed in adequate quantities, as they provide additional societal benefits. In contrast, public goods are usually supplied by the government because the private sector is unlikely to provide them at all, owing to the challenge of charging individuals directly for their use.

In summary, while both merit goods and public goods are recognized as beneficial to society and are frequently subsidized or provided by the government, they differ significantly in their characteristics, modes of provision, and consumption patterns. Understanding these distinctions is essential for informed policy decisions regarding the allocation of resources and funding for these goods.