What is the Difference Between Merit Goods and Public Goods

The main difference between merit goods and public goods is that merit goods are excludable and rivalrous while public goods are non-excludable and non-rivalrous.

Merit goods refer to commodities and services that the government feels that people will under-consume, and which ought to be provided at low cost or no cost so that consumption does not mainly depend on the ability to pay for the commodity or service. Public goods, on the other hand, refer to commodities or services that are provided without profit to all members of a society by the government. While merit goods are only available for certain sections of society, public goods are available to all members and sections of the society.

Key Areas Covered

1. What are Public Goods 
     – Definition, Features
2. What are Merit Goods
     – Definition, Features
3. What is the Difference Between Merit Goods and Public Goods
     – Comparison of Key Differences

Key Terms

Merit Goods, Public Goods

What are Public Goods

Public goods refer to commodities or services that are made available to all members of the society, provided free of charge through public taxation. Public goods typically have two main characteristics: they are non-excludable and non-rivalrous. Non-excludable means that a particular good is available to all citizens or that individuals cannot be excluded from using that good. Non-rivalrous means that use by one individual does not reduce availability to others as the goods do not dwindle in supply as more people use them. Public goods are the opposite of private goods.

National security, official statistics, common language(s), lighthouses, street lighting and flood control systems are some examples of public goods. Some also define basic goods like access to drinking water and clean air as public goods.

The free-rider problem is an issue we usually associate with the concept of public goods. Since public goods are available to all people, some members of society can use the good while refusing to pay for it. For example, people who do not pay taxes take a free ride on revenues provided by people who pay them. Hence, public goods may be under-produced and overused.

What are Merit Goods

Merit goods are the goods which are considered to be socially desirable, and which are likely to be under-produced and under-consumed through the market mechanism. Therefore, the government usually provide them to certain sections of society at a low cost or no cost. Unlike public goods, not all members of the society receive them; only certain targeted people receive merit goods. Although we usually associate the state sector with merit goods, note that they can be provided by the private sector as well. Healthcare and education are the two main examples of merit goods.

Merit goods basically have two main characteristics. The first is that people do not realize the true personal benefit of the merit good at the time of receiving them. For example, people underestimate the benefits of getting a vaccination. Secondly, these goods have a positive externality. In other words, consumption of merit goods has external benefit to others, from which the whole society gains.

Difference Between Merit Goods and Public Goods

Definition

Merit goods are the goods which are considered to be socially desirable, and which are likely to be under-produced and under-consumed through the market mechanism while public goods refer to commodities or services that are made available to all members of the society, provided free of charge through public taxation

Availability

While merit goods are only available for certain sections of society, public goods are available to all members and sections of the society.

Non-excludability

Furthermore, merit goods are excludable while public goods are non-excludable.

Non-Rivalry

Merit goods are rivalrous as consumption of the good by one reduces their availability to others. Public goods are non-rivalrous since consumption of the good by one does not reduce its availability to others.

Provider

Merit goods are provided by both the state sector and the private sector while public goods are provided by the state sector.

Examples

Healthcare, housing and education are some examples of merit goods while the national defence, law and order, street lighting, and lighthouses are some examples of public goods.

Conclusion

Merit goods refer to commodities and services that the government feels that people will under-consume, and provided at a low cost or no cost in order to make sure that consumption does not depend primarily on the ability to pay for the commodity or service.  Public goods, on the other hand, refer to commodities or services the government provide to all members of society, without profit.  While merit goods are only available for certain sections of society, public goods are available to all members and sections of the society.

Reference:

1. Fernando, Jason. “Public Good Definition.” Investopedia, 24 July 2020, Available here.
2. Jose, Tojo. “What Are Merit Goods, Demerit Goods and Public Goods?” Indian Economy, 18 Oct. 2019, Available here.

Image Courtesy:

1. “826379” (CC0) via Pxhere
2. “Goods” By Nber85 – Own work (CC BY-SA 3.0) via Commons Wikimedia