merit and demerit goods

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  • Created by: revise17
  • Created on: 23-03-16 16:24
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  • Merit and demerit goods
    • A demerit good is a good that is over provided by the market mechanism
      • Examples include alcohol, gambling and smoking
    • They are sometimes provided free at the point of use so that consumption doesn't depend on the ability to pay for it
    • They arise because consumers do not take into account the externalities involved and they may not actually be aware of the consequences their consumption
    • The imposition of tax or advertising are ways to solve this market failure
    • A merit good is a good that is under provided by the market mechanism
      • Examples include health care and education
      • If left to the free market, these goods would be heavily underconsumed

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