A Level Economics AQA Practice Exam

What are merit goods?

1. Goods that are over-provided by the market

2. Goods considered harmful to consumers

3. Goods that are deemed socially desirable but under-provided

4. Goods with negative externalities

The correct answer is: Goods that are deemed socially desirable but under-provided

Merit goods are defined as goods that are deemed socially desirable but often under-provided in the free market. This means that while society values these goods and recognizes their benefits, the market fails to supply them in sufficient quantities. Examples of merit goods include education and healthcare, which are considered essential for a well-functioning society. The under-provision occurs because individuals may not fully appreciate the benefits these goods provide, or they may not be able to afford them, leading to societal choices that can result in overall lower welfare. The government often intervenes in the provision of these goods to ensure that they are more widely available, in order to improve social welfare and equity. The other options do not accurately capture the essence of merit goods. While some goods may be over-provided by the market, that does not define them as merit goods. Similarly, goods considered harmful to consumers or those with negative externalities pertain to different classifications in economic theory, focusing more on goods that produce societal costs rather than benefits. Hence, the correct understanding aligns with the concept of merit goods being socially desirable yet under-provided.