Government Provision Increases Merit Goods Supply

Steps:

• Identify hospital care as a merit good, underprovided by markets due to positive externalities.
• Recognize government free provision corrects underconsumption by directly supplying more.
• Determine effect: additional free care boosts overall supply of this merit good.
• Rule out unrelated shifts in private or public goods supplies.

Why C is correct:

• Merit goods like healthcare are government-provided or subsidized to increase supply and address market failure, per economic theory.

Why the others are wrong:

• A: Free provision expands, not reduces, merit goods supply.
• B: Private goods (market-driven) unaffected; focus is on merit goods.
• D: Hospital care is a merit good (rivalrous), not a pure public good (non-rivalrous, non-excludable).

Final answer: C