Which description best fits a merit good?

• A. A good with no external benefits
• B. A good that should not be publicly funded
• C. A good that is not necessary for society
• D. A good whose positive externalities justify public funding

Answer: (D)

Merit goods are goods that bring benefits to more than just the person who buys or uses them; they have positive externalities for society. Because these external benefits are not fully captured by the market price, individuals may under-consume them, so government funding or provision can help raise overall welfare. The description that highlights positive externalities justifying public funding best fits this idea.

For example, education and vaccination generate benefits beyond the individual, such as a more skilled workforce or lower disease transmission, which justifies public support. A good with no external benefits wouldn’t be treated as a merit good, and a good that should not be publicly funded or one not necessary for society wouldn’t reflect the social benefits that merit goods provide.