The economic rationale for government provision of a

Solution

Solution: A Merit Good is a commodity that the government feels individuals should consume, often because it generates positive externalities. · Example (Education): An individual's education benefits society through a more skilled workforce, less crime, and a more informed electorate. Since individuals only consider their private benefit, they under-consume the good. · Government provision (e.g., subsidies or free public education) corrects this under-consumption by internalizing the positive externality, moving output closer to the socially optimal level.