5.2 De-Merit Goods Flashcards
What are de-merit goods?
De-merit goods are goods that are more harmful to individual consumers than they realise, and they are over consumed and over provided by the free market due to information failure and negative externalities that arise from their consumption.
What are some examples of de-merit goods?
Examples of de-merit goods include fast food, cigarettes, alcohol, sugary drinks, gambling, and sun beds.
Why do individual consumers overconsume de-merit goods?
In a free market, individual consumers only consider their private benefits in the consumption of de-merit goods, ignoring the full social benefit of their actions due to self-interest and inadequate information to understand the true private and social benefit.
What is the result of overconsumption and overproduction of de-merit goods?
The result is a misallocation of resources, allocative inefficiency where too many resources are allocated to this market than is socially desirable, generating a welfare loss with society bearing more cost than benefit when units beyond the socially optimal level are produced.
What are merit goods?
Merit goods are goods that are more beneficial to individual consumers than they realise, and they are under consumed and under provided by the free market due to information failure and positive externalities that arise from their consumption.
What are some examples of merit goods?
Examples of merit goods include healthcare, education, vaccinations, sun cream, healthy food, exercise, public transport, and museums.
Why do individual consumers underconsume merit goods?
In a free market, individual consumers only consider their private benefits in the consumption of merit goods, ignoring the full social benefit of their actions due to self-interest and inadequate information to understand the true private and social benefit.
What is the result of underconsumption and underproduction of merit goods?
The result is a misallocation of resources, allocative inefficiency where too few resources are allocated to this market than is socially desirable, generating a welfare loss with society losing out on units that are not produced beyond the socially optimal level that would have generated more benefit to society than cost.
