What do we call goods or services that are beneficial to society but are under-provided and under-consumed by the market?

The correct identification of these goods and services as merit goods highlights their importance to societal welfare. Merit goods are characterized by their ability to generate positive externalities, meaning that their consumption not only benefits the individual purchasing them but also has advantageous effects on society at large.

These goods and services are often under-provided and under-consumed in a free market due to information failures. Consumers may underestimate their value or benefits, leading to lower demand and, consequently, less supply than is socially optimal. Examples of merit goods include education and healthcare, where increased consumption can lead to a more knowledgeable population and a healthier society.

In contrast, demerit goods refer to goods that are considered harmful and are over-consumed, while public goods are those that are non-excludable and non-rivalrous, such as street lighting, which can lead to free-rider problems. Negative externalities refer to the undesired side effects of consumption or production that affect third parties, which is not the case with merit goods. Understanding the role of merit goods is essential in recognizing the need for government intervention to promote their consumption, ensuring that society as a whole benefits.