Merit and Demerit goods Grade 11 Economics

Objectives Define and give examples of merit and demerit goods. Analyse the over-, and under-consumption of these goods, hence market failures. Evaluate government policies concerned with merit and demerit goods.

Key Words Demand Curve Supply Curve Merit Goods Demerit Goods Market Equilibrium Surplus Shortage Private Benefit Social Benefit Externalities

Demerit Goods Goods which are ‘bad for you’. A good such as tobacco for which the social costs to society of consumption exceed the private costs incurred by the consumer. Consumption causes negative externalities to society. Costs include money spent on goods and health damage.

Brainstorm of Demerit Goods Z Alcohol Y X Now think about the last time you consumed each of these!!

Over Production of Demerit Goods Marginal Social Cost 6 5 4 3 2 1 Marginal Private Cost Cost & Benefits Marginal Benefits Q2 Q3 Q1 Quantity Supply

Why do people Over Consume Demerit Goods? People have imperfect information, as they are unaware of long term health effects. Or they are addicted…or both. The government seeks to reduce the consumption of demerit goods.

Merit Goods Goods that would be under-consumed in a free market, as individuals do not fully understand the benefits obtained from consumption. Ought to be subsidised or free at point of use. Social benefits exceed the private benefits.

Brainstorm of Merit Goods Museum NHS Y X Now think about the last time you consumed each of these……

Production Shortage of Merit Goods 6 5 4 3 2 1 Marginal Private Cost Cost & Benefits Marginal Social Benefits Marginal Private Benefits Q1 Q3 Q2 Quantity Supply

Why do people under consume merit goods? People may not act in their best interest due to imperfect information (not knowing that it is beneficial to consume these goods in the long run).

Complete Following Table Merit Goods Merit or Demerit? Demerit Goods Petrol Healthcare Abortion Car Seat Belts Crash Helmets Alcohol Tobacco Heroin Museums Parks Lighthouses BioFuel Cars McDonalds Sweets Marijuana

Market Failure Merit goods cause market failure because too little is consumed in a free market. Demerit goods cause market failure because too much is consumed in a free market.