Merit goods in IB Economics HL explain why education and healthcare matter for society.

What we call goods that are good for society but under-loved by the market

Let’s start with a simple question you might see tossed around in class or in a debate about public policy: what do we call goods or services that are beneficial to society but the market tends to under-provide or under-consume? If you’re thinking “education” or “healthcare,” you’re on the right track. The term is merit goods.

Merit goods sit in a curious spot. They’re not just nice-to-have extras. They have positive spillover effects, or positive externalities, meaning that when one person enjoys the benefit, others in society gain something too. That could be a healthier population, a more skilled workforce, or a less crime-prone community. Yet the market often falls short of delivering enough of them. Why does that happen? And what does it mean for governments, families, and individuals?

Let me explain the idea in plain terms. When you buy something, you’re usually thinking about your own costs and benefits. If the benefits of buying education or healthcare spill over to others—your neighbors, your future coworkers, your country’s economy—you as a consumer might not fully capture those extra benefits in your decision. In other words, you might not feel all the good stuff that society gets from you choosing to learn or to stay healthy. That creates a gap between what the market provides and what’s best for everyone. This gap is what economists call under-provision or under-consumption of merit goods.

Why markets miss out in the first place

Two big culprits help explain the phenomenon:

• Information gaps. People often underestimate the long-term value of education or preventive health care. A child may not realize how much a good education unlocks doors years later, or a busy adult might delay vaccines or screenings even though they’re valuable in the long run. If you don’t see the full payoff, you’re not going to demand as much of it as would be ideal for society.

• Myopia and misaligned incentives. Even when the benefits are clear in the long run, the costs come upfront. Tuition, exam fees, clinic visits, or time off work add up now, while the benefits arrive later. That timing distortion makes it harder for the market to allocate resources efficiently.

In short, merit goods aren’t simply “rational” in the narrow, immediate sense. They require recognition of broader benefits that stretch beyond the individual paying the bill.

A few real-world examples that sit well with everyday life

Education. It’s the classic merit good. When people become better educated, they tend to earn more, participate more in civic life, and contribute to a more innovative economy. But if schools are underfunded or if families can’t afford quality schooling, kids miss out on opportunities. The ripple effects touch the whole society: productivity, social mobility, even cultural vitality.

Healthcare. Preventive care, vaccines, and routine checkups keep people healthier and reduce the burden on the system later. If populations neglect preventive care, you get higher illness rates, greater costs, and more disruption to families and communities. Even healthier individuals benefit everyone—less strain on hospitals, steadier workplaces, and quieter streets.

Public libraries and cultural access. Access to information and culture isn’t just about books. It’s about literacy, informed citizenship, and the ability to adapt to changing jobs. When communities invest in libraries or affordable cultural programs, they’re investing in human capital that pays back in surprising ways.

Nutrition programs and preventive services. Making healthy food more accessible or offering preventive nutrition advice can prevent expensive health issues down the road. The society gains through fewer sick days, steadier productivity, and a more resilient public health profile.

Public goods, private goods, and the big picture

To make sense of merit goods, it helps to distinguish them from a few related ideas:

• Demerit goods are things society might prefer people not to consume as much of—think addictive substances or highly polluting products. In many cases, demert goods are over-consumed in the market because individuals focus on short-term pleasures rather than long-term costs.

• Public goods are non-excludable and non-rivalrous. Think street lighting or national defense. Because people can benefit without paying, markets under-provide these too, but for a different reason: free-rider problems. Merit goods aren’t necessarily public goods, but they can overlap with public policy when the benefits spill widely.

• Negative externalities are the opposite of positive externalities. If a factory pollutes a river, the costs fall on others who didn’t choose the production. Merit goods create positive externalities, which is part of why government intervention is often argued for—society as a whole gains when merit goods are more widely consumed.

So, merit goods sit at an intersection: they’re valuable to more than just the buyer, but the market alone doesn’t always ensure enough of them reach the people who would benefit.

What governments tend to do (and why)

Given the social value of merit goods, many governments step in to tip the balance toward higher provision and consumption. Here are some familiar approaches, kept practical and straightforward:

• Subsidies and funding. Governments can lower the price of education and healthcare, either by direct funding to providers or by subsidies to students and patients. The goal is to make these goods more affordable, so more people take part.

• Public provision. In some places, schools, universities, hospitals, or clinics are publicly owned and operated. The idea is to ensure access for all, particularly for those who would otherwise struggle to pay.

• Information campaigns. Sometimes the barrier isn’t cost but perception. Public health campaigns, tax-funded counseling, and school outreach efforts help people understand the long-term benefits of education and preventive care.

• Quality assurance and standards. When services are funded, governments can set quality benchmarks, regulate entry, and ensure that the benefits aren’t just accessible but effective. That helps in getting better value from every dollar spent.

• Tax incentives and flexible spending. Some systems offer tax breaks or health savings accounts to encourage consumption of merit goods, balancing present costs against future gains.

These tools aren’t free of trade-offs. Spending on merit goods comes from somewhere—tax revenue or reallocated budgets. The challenge is to balance efficiency (getting the most social benefit from every dollar) with equity (ensuring fair access for all, not just the already well-off).

A gentle note on trade-offs and debate

Promoting merit goods often means choosing between competing priorities. There’s a thoughtful tension between universal access and targeted support. Some folks worry about government overreach or inefficiency, while others push for stronger social safety nets and more equal opportunities. The trick is to design policies that maximize social welfare without stifling innovation or hard work.

Consider this: if a country invests heavily in early childhood education, the payoff might show up years later as a more skilled workforce and lower crime rates. But those benefits can be diffuse and appear slowly. It’s easy to be tempted by policies that promise quick wins, yet merit goods usually demand persistence and a long-term view. The payoff is not guaranteed every year, but over generations, many observers argue the benefits accumulate.

Connecting to daily life: a few relatable angles

• A neighbor who gets a vaccination not only protects themselves but also contributes to herd protection. That’s a simple, real-world example of a positive externality tied to a merit good.

• An educated workforce attracts businesses, which in turn raises local opportunities and wages. It’s not hard to imagine how a school system that works well can ripple outward into better employment prospects for graduates.

• Libraries and community centers may feel quaint to some, but they’re hubs of learning, digital access, and social cohesion. The return isn’t just literacy—it’s the ability to participate more fully in society.

• For families facing tough choices, recurrent support for healthcare or education can feel like a lifeline. It’s not merely about cost saved now; it’s about avoided future costs and greater life chances.

The bottom line for merit goods

Merit goods are a reminder that markets don’t always chart the optimal path for society. The good news is that policy can tilt the scales toward higher provision and consumption when the social benefits are clear. Education and healthcare stand out as quintessential examples because they touch the core of what it means to lead a flourishing life: knowing more, staying healthier, and contributing to a stronger, more capable community.

If you’re studying these ideas, don’t overcomplicate the picture. The essence is simple: some goods are good for all of us, more than we realize, and the market alone doesn’t always reward that. When that happens, policy discussions—about funding, access, and information—become not political showdowns but practical conversations about how to make society better.

A quick mental model you can carry forward

• Identify the social benefit: Is there a spillover that benefits others beyond the buyer?

• Check the market outcome: Is consumption higher or lower than what would maximize welfare?

• Consider policy options: Could subsidies, public provision, or information campaigns raise welfare without creating new problems?

That blend of economic reasoning and everyday life makes the idea of merit goods not just a classroom concept but a lens on the world around you. It’s a reminder that a thriving society is built not only on what people choose to buy but also on the choices societies make to support each other.

If you’re curious to test the idea, look for local debates on funding for schools, vaccination programs, or preventive health services. Notice how often the conversation hinges on whether the public benefits justify the cost. You’ll probably see merit goods in action more often than you expect, tucked into the background of everyday decisions and long-term policy designs.

A final thought

Merit goods aren’t a fancy label for something distant. They’re about everyday priorities—education for tomorrow’s workers, health for today’s families, access to information for curious minds. When markets misprice these benefits, governments, communities, and individuals all have a role to play in nudging consumption toward what makes society stronger.

So next time you hear someone talk about public spending or social welfare, you’ll have a ready way to explain why merit goods matter. They’re the quiet champions of collective well-being—a timely reminder that some of the most important wins aren’t just personal victories, but shared gains that lift us all.