4.1.8.5 Merit and demerit goods

Question 1

Define merit goods

Answer 1

a good, such as healthcare, for which the social benefits of consumption exceed the private benefits. Value judgements are involved in deciding that a good is a merit good.

Question 2

Define demerit goods

Answer 2

goods, such as tobacco, for which the social costs of consumption exceed the private costs. Value judgements are involved in deciding that a good is a demerit good.

Question 3

What can under-provision of market goods lead to?

Answer 3

Market failure

Question 4

what is the difference in market failures that merit goods vs public goods lead to?

Answer 4

merit goods lead to partial market failure whilst public goods lead to complete market failure or a missing market.

Question 5

What does information failure lead to in a market of merit goods?

Answer 5

It distorts a consumer’s choice on what is the primary optimal level of consumption.

Question 6

name two examples of merit goods?

Answer 6

education and healthcare.

Question 7

What are some examples of demerit goods?

Answer 7

Tobacco, alcohol ect

Question 8

What are the two main features of merit and demerit goods?

Answer 8

They have:

1. Positive/negative externalities
2. Information failure (the benefit is over/under estimated)

Question 9

what will happen to the marginal personal benefit when someone has the full information of a demerit good ?

Answer 9

The demand curve (MPB) shifts inwards and the overconsumption is eliminated