merit and demerit goods
- 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
- A demerit good is a good that is over provided by the market mechanism
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