C.C.
Right now in my wine rack I have a few reds that are inexpensive and very drinkable. I assume by Merlot you're going for something lighter than a Cab, and not too feisty, yes? You could serve any of these at a nice dinner and not be embarrassed. (Keep in mind that blind taste tests have shown that very inexpensive bottles can often stand up to very expensive bottles, with nobody being the wiser if they're decanted ;)...
Bodega Norton Reserva Malbec 2010 (you can get it at Costco, actually! For ~$12ish a bottle) - This is in Wine Spectator's top 100 wines for 2010, and has a 90 score, so it's a serious bottle of wine for not a lot of money. And since Malbec is practically the South American version of Merlot, you can hardly go wrong with this bottle.
Tobin James "Ballistic" Zinfandel 2010 ($10 a bottle; their list price is higher, but you can get it for $10 everywhere) - Tobin James also makes a Merlot, but I like their Zin better. Nice, berry undertones, fairly complex. Anyone who loves Central CA Coast wines will go nuts for this one. ;)
Cupcake Wineries "Red Velvet" 2011 (under $10 a bottle) - it's a blend with Zin, Merlot, and a little Cab/Petite Syrah? Very easy to drink; pleasant and not too forward.