1. Merit and Demerit goods
Grade 11 Economics

2. 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.

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

4. 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.

5. Brainstorm of Demerit GoodsZ
Alcohol Y X
Now think about the last time you consumed each of these!!

6. 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

7. 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.

8. 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.

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

10. Production Shortage of Merit Goods6 5 4 3 2 1
Marginal Private Cost
Cost & Benefits
Marginal Social Benefits
Marginal Private Benefits Q1 Q3 Q2
Quantity Supply

11. 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).

12. 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

13. 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.