Merit And Demerit Goods

Question 1

What is a merit good

Answer 1

A good which is under - consumed in the free market relative to the socially optimal level of consumption

Question 2

Why are merit goods underconsumed

Answer 2

Information failure, failure of consumers to take into account long term or external benefits, or problems with affordability

Question 3

What is a demerit good

Answer 3

Goods which have a negative impact on health and are often overconsumed

Question 4

Why are demerit goods overconsumed

Answer 4

Same reasons as merit goods being underconsumed

Question 5

Examples of merit goods

Answer 5

Vaccines, education, healthcare, exercise

Question 6

Examples of demerit goods

Answer 6

Cigarettes, drugs, sugar

Question 7

How can you show diagrams for merit or demerit goods

Answer 7

Do the externality diagram, but label MSB and MPB full information and partial information respectively

Question 8

What policies can address under and over consumption of merit and demerit goods

Answer 8

Same as externality, + information schemes