Merit and Demerit goods Flashcards
What do merit goods have?
A greater social benefit than private benefit
What are merit goods?
Goods whose consumption is regarded as beneficial to society. They provide benefits to both individuals and society as a whole
Why are merit goods flawed?
People are usually unaware of the full benefits that merit goods produce
What are examples of merit goods?
Healthcare, Education
Why are merit goods underconsumed?
In the free market, the positive externatiles that merit goods produce are ignored, and production and consumption will be below socially optimal levlel
Due t iimperfect infomatoin, consumers don’t always realise the full benefits of merit goods
Wat are demerit goods?
Goods whose consumption is regarded as harmful to the people that consume them, but people are usually unaware or don’t care about the harm caused.
Why are demerit goods bad for society?
the negative externatiles that result from their consumption
What are examples of demerit goods?
CIgarretes or Heroin
Why are demerit goods overconsumed?
In the free market, negative externalites from demerit goods are ignored; production and consumption are above socially optimal level
Due to imperfect infomatoin, people don’t realise the harm of demerit goods
Why is it hard to classify demerit/merit goods?
it’s based on a value jugdement
What can affect the consumption of goods?
short - term decision making
Why does short term decisions affect consumption?
people often only consider the short-term benefits or costs. Individuals can fail to see the need to make provision for the future and for potential changes to their circumstances.
Why are merit goods underconsumed because of decison making?
long term private benefits of merit goods are much greater than short term private benefits
Why are demerit goods overconsumed because of decison making?
The long-term costs of demerit goods are greater than short-term cost
How can governments intervene in markets for demerit/merit goods?
directly provide goods or servces
use taxes and subsidies to increase/decrease consumption to socially opimal level
Why is the government effective at intervening in the market for demerit/merit goods?
THey have a lot of information regarding the costs and benefits
