Merit and demerit goods

Question 1

Merit goods

Answer 1

Goods/services that are considered to be beneficial to individuals and society as a whole

Question 2

Merit goods notes

Answer 2

-Often under consumed in the free market
-Better for us than we think
-E.g. education, healthcare

Question 3

Two characteristics of merit goods

Answer 3

-Usually have positive externalities
-People do not realise the true personal benefit (e.g. people underestimate the benefit of a vaccine

Question 4

Demerit goods

Answer 4

Goods that are seen as harmful to individuals and society as a whole

Question 5

Demerit goods notes

Answer 5

-Often over consumed in a free market
-Worse for us than we think
-E.g. drugs, alcohol, cigarette

Question 6

Two characteristics of demerit goods

Answer 6

-Usually have negative externalities
-A good that harm consumers

Question 7

Value judgement of merit and demerit goods

Answer 7

Classification if something is good or bad for you isnt always straightforward and sometimes depends on your belief/view. e.g. cannabis

Question 8

Underconsumption of merit good

Answer 8

-Demand should be more as more people would use/buy it if they knew the full benefits
-Information failure: not understanding full benefit
-Without full information, good is underprovided

Question 9

Overconsumption of demerit goods

Answer 9

-Demand would be lower as people do not understand the full problems associated with it
-Information failure: not understanding the full cost
-Without full information, good is over provided.