Information Failure and Merit and Demerit goods

what are merit goods?

goods which are deemed to be more beneficial to the consumer than they realise

why do consumers not fully understand how good merit goods are for them?

because there’s imperfection information→ due to information failure→ info around product may not be present at all, it may not be clear and some consumers may just ignore it

what is information failure?

when there is a problem with the info surrounding a good, meaning consumers may not fully understand the benefits or risks of a good

what is aysmmetric information?

where the informatio does exist but sin’t shared equally between two parties

what will merit goods generate in their consumption?

positive externalities

what are some examples of merit goods?

-education→ individuals will understand the benefits of consuming it but may not understand the extent of benefits like higher incomes→ may lead to irritational decision to underconsume education and underproduction in a free market
-healthcare

what is a demerit good?

-a good that society deems harmful to consumers than they realise

why are demerit goods more harmful than consumers realise?

because of the imperfect information→ like info failure or asymmetric info (true for demerit, producers have the info but are choosing to not share it with consumers)

examples of a demerit good?

-alcohol
-cigarettes→ people may not know just how bad cigarettes are for them due to information failure and may make irrational descions to overconsume them

what are demerit goods in a free market?

overconsumed and overproduced→ due to having negative externalities