Merit and Demerit goods Flashcards
1
Q
What are merit goods ?
A
Goods that are better for consumers than they realise , they create positive externalities when consumed
MPB<MSB
2
Q
Why are merit goods under consumed ?
A
Imperfect information about the good - people don’t fully understand the benefits of the goods when consumed
Asymmetric information when information isn’t fully shared to everyone equally
3
Q
What are demerit goods ?
A
Goods that are harmful to consumers than they realise - they cause negative externalities when consumed
MSB<MPB
4
Q
Why are demerit goods over consumed and produced ?
A
Caused by imperfect information - people dont fully understand how bad the product is when consumed
Information about this good is only known by a few and not all
