Merit/De-Merit

Question 1

What are Merit goods

Answer 1

Goods with a postive effect/ more benefical than consumers realise

They are: under produced and consumed
(in relation to the social Optimum)

Question 2

Why may merit goods more benefical than consumers

Answer 2

Information failure-

Asymmetric info

Question 3

An under consumed good is a ……

Answer 3

Merit good(social benefit>Private benefit)

Question 4

What do merit goods give off

Answer 4

Positive externalties

Question 5

Consumption of a de-merit good can lead to what?

Answer 5

Negative externalties

Question 6

2 reasons Why consumers may not realise the benefits of a merit good?
(Why are they underconsumed/produced)

Answer 6

1)Information failure-consumers/firms having inaccurate or a lack of info
Which may cause them to make wrong choices

2)Asymmetric info- one party(consumers or seller) knows more info then the other

Question 7

Why may consumers be unaware of the negative externalities of De-merit

Answer 7

Due to Imperfect information- both consumers producers may lack knowledge as theres little information available

E.G in 1920s with the effect of smoking

Question 8

What Methods of Government Intervention are used
(in relation to merit goods)

Answer 8

1)Subsidies

2))public provision (government-funded schools and healthcare),

3)Info provision/public awareness

(campaigns to promote the benefits of consuming these goods)

Question 9

What Methods of Government Intervention are used
(in relation to demerit goods)

Answer 9

1)taxation
(e.g., higher taxes on cigarettes),

2)regulations
(e.g., age restrictions on alcohol),

3)IInfo Provision
(campaigns discouraging use,

4)bans
( in extreme cases)

5)Subside Alternatives

6)Nudges

Question 10

Define De-Merit Goods

Answer 10

Goods
over-consumed/produced relative to what would be socially desirable.

(private benefit>Societal Benefit)

Question 11

Define Merit Goods

Answer 11

under-consumed
relative to what would be socially optimal

(Societal benefit>Private Benefit)

Question 12

Define Merit and Demerit Goods for an Intro into a Government Intervention essay

Answer 12

1)Define merit good

2)Define Merit Good

3)Government intervention

promoting the overall welfare of society

by correcting theses externalities

(by either encouraging the consumption of merit goods or
discouraging the consumption of demerit goods)

Question 13

Difference between a merit good and a positive Externality

Answer 13

A merit good, is a good with a positive externality

so the consumption/Production of the good Benefits society as whole (not just the consumer)