Question

Explain why the consumption of merit goods, such as healthy food, can lead to positive externalities of consumption. [10]

Answer 1

Merit goods are the ones that are good for society to consume. They are usually provided by the government or subsidized by them as they always stay under-consumed in an economy. Examples of merit goods are health, education, security, etc.

A positive externality occurs when due to consumption of a good by a person a third person who is neither involved in the production nor in the consumptions gets benefit out of it.

Now, consumption of a merit good like healthy food can bring positive externality. This is because the consumption of healthy food will keep that person away from any type of illness due to which people around him will stay healthy too and they won't have to spend their energy in taking care of ill people around them.

Thus eating healthy food by a person can create positive externality to the people around him.