Microeconomics - Merit and demerit goods

Question 1

what are negative externalities caused by

Answer 1

Negative externalities are caused by demerit goods. These are associated with
information failure, since consumers are not aware of the long run implications of
consuming the good, and they are usually overprovided.

For example, cigarettes and
alcohol are demerit goods. The negative externality to third parties of consuming
cigarettes is second-hand smoke or passive smoking

Question 2

what are positive externalities caused by

Answer 2

caused by merit goods. These are associated with
information failure too, because consumers do not realise the long run benefits to consuming the good. They are underprovided in a free market

For example,
education and healthcare are merit goods. The positive externality to third parties of
education is a higher skilled workforce.