2.3 Merit and Demerit Goods

Question 1

why are merit goods underconsumed in the free market

Answer 1

• they egenerate positive externalities which are ignored
• consumers are unaware of their benefits (information gaps)
• their benefits tned to be felt in the longer term and are therefore discounted
• affrodability might prevent people from being able to access the good

Question 2

examples of merit goods

Answer 2

• vaccines
• education
• preventative healthcare (e.g. smear test for cervical cancer)

Question 3

why are demerit goods over-consumer in the free market

Answer 3

• they generate negative externalities which are ignored
• consumers are unaware of their harms (information gaps)
• their harms tend to be felt in the longer term and are therefore discounted

Question 4

examples of demerit goods

Answer 4

• cigarettes
• sugary drinks
• gasoline
• alcohol
• drugs
• vaping