Merit goods are goods or services that are considered beneficial to individuals and society as a whole, but are often under-consumed in a free market economy. They are commodities that the public sector provides free or cheaply because the government wishes to encourage their consumption. Merit goods are those goods and services that the government feels that people will under-consume, and which ought to be subsidized or provided free at the point of use so that consumption does not depend primarily on the ability to pay for the good or service.

The concept of merit goods originated from economist Richard Musgrave in the 1950s. Merit goods can be defined as goods which would be under-consumed (and under-produced) by a free market economy, due to two main reasons: the positive externalities associated with the consumption of the good, and the fact that individuals may not consume them in optimal quantities.

Examples of merit goods include education, healthcare services, public transportation, and renewable energy. Consumption of merit goods benefits society as a whole, and these benefits outweigh the private benefits enjoyed by the individual due to positive externalities. Merit goods cause partial market failure because they are under-provided in the market.