3.1.5.5 Merit and demerit goods Flashcards
1
Q
What is a demerit goods?
A
A good, in which the cost of consuming it and negative externalities of consumption, are ignored or under-estimated (imperfect information).
2
Q
What is a demerit goods?
A
A good, in which the benefits of consuming it and positive externalities of consumption, aren’t known or under-estimated (imperfect information).
3
Q
Give an example of merit good?
A
Students may under-estimate the benefits of studying, thus leave school early.
4
Q
Give an example of demerit good?
A
People may not be aware of the dangers of smoking.
5
Q
In free markets, merit goods are?
A
Under-consumed
6
Q
In free markets, demerit goods are?
A
Over-consumed
