Subsidies Promote Merit Goods

Steps:

• Identify merit goods as beneficial items like education or healthcare with positive externalities, often underconsumed.
• Recognize government subsidies lower prices to encourage more consumption.
• Evaluate choices: subsidies target increasing desirable behaviors, not decreasing them.
• Match to option B, which aligns with boosting merit good use.

Why B is correct:

• Merit goods have positive externalities; subsidies reduce price, shifting demand rightward to increase consumption per economic theory.

Why the others are wrong:

• A: Subsidies raise consumption, not decrease it; taxes curb merit goods if needed.
• C: Demerit goods like tobacco use taxes for reduction, not subsidies.
• D: Subsidies would boost demerit goods, contradicting policy to discourage them.

Final answer: B