Can someone clearly explain to me what merit and demerit goods are?
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11-18-2012, 12:59 PM
Post: #1
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Can someone clearly explain to me what merit and demerit goods are?
I'm studying economics and we briefly mentioned merit and demerit goods but I don't completely understand what they are. I know that cigarettes and alcohol are demerit goods, and that education is a merit good but I don't totally understand the definition?
Is a demerit good just a good which has negative externalities? for example smoking has smoke pollution, alcohol is linked to health problems, anti social behaviour etc ? and is a merit good something which gives a benefit back to society? like education creates doctors, mechanics etc? Thanks in advance Ads |
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11-18-2012, 01:07 PM
Post: #2
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There is overlap between externalities and merit/demerit goods, but they are not quite the same.
"merit good can be defined as a good which would be under-consumed (and under-produced) in the free market economy" (http://en.wikipedia.org/wiki/Merit_good) Thus, goods with positive externalities are generally merit goods, and those with negative externalities are generally demerit goods. BUT, there are other types of merit goods. Take exercise equipment: it doesn't have much of an externality, but on average people would be happier if they exercised more. They don't because they are myopic. Ads |
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