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What is it?
Demerit good is a good or service whose consumption is considered unhealthy,
degrading, or otherwise socially undesirable due to the perceived negative effects on
the consumers themselves.
It is over-consumed if left to market forces.
Examples of demerit goods include tobacco, alcoholic beverages, recreational drugs,
gambling, junk food and prostitution.
Because of the nature of these goods, governments often levy taxes on these goods
in some cases regulating or banning consumption or advertisement of these goods.
This graph demonstrates how if the government intervention moves it from (p1, q1) to (p2,
q2) to a more socially optimal level.
Policies to tackle (using alcohol as example):
Education- Helps promote perfect information, consumers realise the long term
negative effects of drinking and
stop drinking. Would help target
18-25, biggest consumer of
alcohol. However, expensive to
Price increase- Although due to
demand inverse relationship with
price, demand would decrease,
due to price inelasticity of
alcohol, it wouldn't have much of
an effect. Therefore, this would
not be a viable policy. May
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This will reduce demand of alcohol
as it means that the price is raised,
however, it will lead to excess
supply which means the government
will have to buy the excess or
encourage demand, which is not a
viable choice. Therefore, there is a
cost to the taxpayer.
Regulation- Increasing legal alcohol
consumption age in order to reduce
demand for alcohol, e.g.…read more