A Level Economics AQA Practice Exam

What often leads to the under-provision of merit goods?

1. Increased consumer knowledge

2. Positive externalities associated with the goods

3. Consumer ignorance regarding the benefits

4. High costs for producers

The correct answer is: Consumer ignorance regarding the benefits

Merit goods are those that are deemed beneficial for individuals and society as a whole, leading to a perceived under-consumption when left to the free market. One of the primary reasons for the under-provision of merit goods is consumer ignorance regarding the benefits they offer. When individuals are not fully aware of the advantages of consuming these goods—such as education or healthcare—they may undervalue them, resulting in lower demand. This ignorance can lead to insufficient consumption, making it difficult for these goods to be provided at the socially optimal level. In contrast, increased consumer knowledge would likely lead to a higher demand for merit goods, addressing the issue of under-provision. Positive externalities could enhance the case for providing merit goods, as they highlight the societal benefits that exceed the private benefits, which may not directly contribute to the shortfall in provision. High costs for producers, while potentially influencing supply, do not directly correlate to the awareness consumers have regarding the advantages of merit goods. Thus, the misjudgment or lack of information surrounding the benefits of merit goods fundamentally contributes to their under-provision in the market.