Merit and Demerit goods

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6 Terms

1
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Merit good

Underconsumed good with positive externalities

2
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Demerit good

Overconsumed good with negative externalities

3
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Negative externality

Caused by demerit goods.

4
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Negative externality to third parties of consuming cigarettes

Second-hand smoking

5
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Positive externality to third parties of education

Higher skilled workforce

6
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Information failure

Consumers not being aware of the long run implications of consuming a good.