De-merit goods

define demerit goods

goods that not just have a cost to those consuming them but to the rest of society too. they have negative externalities

why does the government try control de merit goods

1. can cause negative externalities

2. consumers may be unaware about long term damage to own health via imperfect information

3. banning or limiting may reduce demand however lead to black market economies

market failure with demerit goods

the free market may fail to take into account negative externalities because the social cost is higher than the private cost. as well as imperfect information

case studies 2

1. obesity. social costs that come from obesity. 2/3 every american is overweight 1/3 expected to have diabetes by 2025

2. drugs. Regulation is currently costly and hard to do. suggestions such as legalisation and taxation or increased information such as removal of branded cigarettes