4.1.8.5 - merit and demerit goods

Question 1

What are the characteristics of a merit good

Answer 1

• associated with positive externalities of consumption
• caused by information failure as consumers fail to recognise how beneficial the consumption fo certain goods is to them
• this leads to the under consumption of the goods
  Eg: good education, libraries, healthy eating

Question 2

What is the difference between merit and public goods

Answer 2

The consumption of a merit good will reduce the amount that is available to others m however the consumption of a public good by one person will not affect he amount available to others to consume

Question 3

What are the characteristics of a demerit good

Answer 3

• associated with negative externalities of consumption
• caused by information failure as consumers fair to recognise how harmful the consequences of consuming the goods are
• leading to an over consumption of these goods in the free market
  Eg: speeding, alcohol, smoking