2.9 information failure (demerit and merit goods)

merit good defintion?

goods that’re deemed to be more beneficial to consumers than they realise

why do consumers not realise hwo benefical merit goods are?

-there’s imperfect info about the good/service
-this could be due to info failure or asymmetric information

what is info failure

-when the info around a good is either not clear, not there at all, or consumers ignore the info around a product
-there’s a problem with the info surrounding a product, meaning that consumers don’t fully understand the benefits or shortcomings of a specific good or service

what is aysmetric info?

when info around a good/service does exist but isn’t shared equally between two parties

what type of externalities do merit goods generate in their consumption

positive

examples of merit goods

healthcare
education
excercise

what are merit goods in a free market?

under consumed and underproduced

define demerit goods

.goods that’re more harmful to consumers than they realise

why don’t consumers realise the harmful nature of imperfect goods?

there’s imperfect info surrounding them
this could be info failure or asymmetric info

what do demerit goods create?

negative externalities in consumers

examples of demerit goods

cigarettes
alcohol
gambling

what are demerit goods in a free market?

overconsumed and overproduced

look at school notes for diagrams

!