Subsidizing merit goods in market economies

Steps:

• Identify the action: Government subsidizes internet in remote areas, a market economy intervention.
• Classify the good: Internet access is a merit good, undervalued by consumers for education and connectivity benefits.
• Analyze market failure: Merit goods lead to underprovision due to imperfect information or positive externalities.
• Determine policy goal: Subsidy corrects underprovision by lowering costs and boosting supply/demand.

Why B is correct:

• Merit goods are underconsumed in free markets; subsidies increase provision to optimal levels, per economic theory on correcting information failures.

Why the others are wrong:

• A: Subsidies raise, not decrease, provision of merit goods.
• C: Internet is excludable and rivalrous, not a pure public good like national defense.
• D: Subsidy addresses underprovision, not negative externalities like pollution.

Final answer: B