4.1.8.5 Merit and Demerit Goods

Question 1

Definition of a Merit Good

Answer 1

A good usually with a positive externality. People do not realise the true personal benefit of the good.

Question 2

Definition of a Demerit Good

Answer 2

A good usually with a negative externality. The good harms the people who consume it.

Question 3

Example of a Merit Good

Answer 3

Healthcare - People understand the benefits of getting a vaccination. If people do get a vaccination, then there will be a personal benefit in protecting against diseases. Also, there will be external benefits to the rest of society because it will help reduce the prevalence of disease in the rest of society.

Question 4

Examples of Demerit Goods

Answer 4

Smoking - People underestimate heath costs or risks of getting addicted. Social cost of second-hand smoking to society.

Drinking - Health costs to drinkers. Costs to society include more expenditure on healthcare and pricing, as well as any negative impacts caused by drunk citizens.