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Pros:
* The quantity supplied of the merit good increases, and the price decreases, so more consumers are able to purchase it. Both of these magnify the product's benefit to society.
* Increased production will add to the nation's GDP, so long as the primary investors of the firms producing are based in that nation.
*New firms entering the market means more jobs are created, so ceteris parabis unemployment decreases.

Cons:
* The government incurs an opportunity cost, as the government now partially pays for the production of the good or service.

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Ceteris Parabis- that all else in the market remains the same. Furthermore, the assumption is that there is enough potential business owners that are willing and able to enter the market as a new firm.

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Due to the nature of merit goods, the government wishes to increase the quantity of the good sold in order to maximize the social marginal benefits. Some good like education countries like England deem important enough to subsidies to the point of being free at the point of use to maximize the benefits to society.

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Solar panels are a merit good as they help energy conservation decreasing the pollution that households energy demand causes. The government subsidized solar panels in order to increase the consumption of solar pannels.

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The first graph shows the effects of a subsidy on a market. Due to the addition of the subsidy, the production costs of a product are lowered, which allows firms to supply at a lower price equilibrium. Lower prices means that more companies can enter the market, which leads to increased quantity supplied. Furthermore, if the price to buy the product is lowered, then more consumers can purchase the product, which again leads to increased quantity supplied.

The second graph shows an overallocation of resources at Q1 at price P1, into a market that benefits society. There is a positive externality of consumption, where third parties gain from the consumption of a good causing Marginal Social Benefit to be greater than Marginal Social Cost and Marginal Social Benefits to be greater than Marginal Private Benefits. The new price equilibrium creates a welfare gain.

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A merit good is a good that comes with an external benefit to society. Where Marginal Social Benefits > Marginal Private Benefits .  Government intervention is when the Government  takes action with the purpose of directly effecting a market.