| What are Merit Goods? | -These are Goods, where Consumption is Benefitting Society. They Provide a Benefit to the Individual and Society, explained by their Positive Externalities. Often, they are Under consumed/ produced |
| Why are Merit Goods Under consumed? | -Free Markets ignore the Positive Externalities that Merit Goods bring about, and thus Production & Consumption will be kept Under the Optimal Level.
-Imperfect Information means that Consumers will not always know what Benefits Merit Goods really give out. Therefore the Demand will not be as High as it Should be. This could even lead to a Complete Rejection, like Vaccinations. |
| What are Demerit Goods? | -These are Goods that upon Consumption, it Damages to People that Consume them, but the Consumer does not Care. Demerit gods can also Badly affect Society from their Negative Externalities. Cigeratte and Heroin are 2 Examples |
| Why may Demerit Goods be over-consumed? | -Free Market does not Care for the Negative Externalities and thus Production and Consumption are Above Socially Optimal Level.
-Imperfect Information means that Consumers won't 100% know the Damage Internally and Externally, so, Demand isn't as Low as it Should be |
| What decides a good to be a Merit Good or a Demerit Good? | -It is simply Value Judgments - Opinions. This is because People have Different Opinions and Different Economic Theorem. |
| Why is it that not all Goods with Negative [Or Positive] Externalities an automatic Demerit [or Merit] Good?
-Use Driving as an Example | -Driving creates Pollution - Harmful to Society. But Driving isn't as Harmful to the Individual as say Drugs is, and it allows the Individual to be Mobile, and then helps Society that Way] |
| Why are Merit Goods Under-Consumed or Under-produced?
[Free Market Diagram] | -This is to do with how the Free Market operates, only caring for the Private Benefit and Cost. Merit Goods will have MSB or MSC more to the Right than their Private counterpart.
-But since the Free Market cares for the Private Benefit / Cost, MSB or MSC or both is Ignored, leading to a Under consumption or Under Production
-A Welfare Gain is Lost. |
| Why are Demerit Goods Over-Consumed or Over-Produced?[Free Market Diagram] | -This is how the Free Market Operates, only caring for the Private Benefit and Cost. Demerit Goods will have MSB or MSC more to the Left than their Private Counterpart.-And since MSB / MSC is Ignored, an Over-consumption / production is Present and a Welfare Loss is Present. |
| Why can the Short Term Decision Excaberate Underconsumption of Merit Goods and Overconsumption of Demerit Goods? | -Sometimes only the Short term Benefits / Costs are Considered, so the Future is failed at being Considered - Not a Rational Choice?
-Merit Goods Long Term Private Benefit will Outweigh their Short Term MPB, and Demerit Goods will have Greater long term MPC than their short term MPC [So therefore that’s why Demerit Goods are over consumed as Long term isn’t being Factored in] |
| How can Governments intervene and help the Free Market to reach the Socially Optimal Level? | -Governments can directly Provide the Good/Service, Tax, or use Subsidies [Influences consumption of good]
-Government has a Lot of Information regarding the Costs and Benefits of Goods/Services so can make Wise Choices to benefit the Nation |
