Merit and Demerit goods

Question	Answer
Merit Goods	A merit good is a good in which consumption results in positive externalities onto a third party. There are two characteristics of a merit good - People do not realise the true benefit (underestimating benefits of education) -These goods have positive externalities Therefore in a free market these goods are underconsumed. Examples Healthcare Museums Fruit and Veg Education
Merit goods diagram	Image: Positive Consumption Externality (image/jpeg)
Demerit goods	A demerit good is a good in which consumption results on negative externalities on a third party . A demerit good has two characteristics - A good which harms the consumer E.g Cigarettes, drugs -Usually these goods have negative externalities e.g smoking creates passive smoking Therefore in a free market these goods will be overconsumed Examples Smoking Drinking Taking drugs Drinking sugary softdrinks
Demerit goods diagram	Image: Demerit Good (image/jpeg)

Resource summary

	Created by Matthew Battell about 3 years ago