Merit and Demerit Goods
Definition: A merit good has 2 characteristics
- People do not realise the true benefit. For example, people underestimate the benefit of education or vaccinations.
- Usually these goods have positive externalities.
Therefore in a free market there will be under consumption of merit goods.
Examples of Merit Goods:
- Health Care
- Museums
- Education
Demerit Good:
Definition: A demerit goods has 2 characteristics:
- People don’t realise, or ignore the costs, of doing something e.g. smoking, drugs.
- Usually these goods have negative externalities.
Therefore in a free market there will be over consumption of these goods. the govt should intervene to reduce demand.
Examples of Demerit Goods include:
- Smoking
- Drinking
- Taking drugs
Essays and Revision Notes on Market Failure
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