Merit Goods and Demerit Goods Flashcards

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Note: We may include questions that have multiple correct answers. It's useful to remember specific examples to understand these concepts better.

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What is a merit good?

A good the government thinks people should use more of because it is good for them and for society. In a free market it is often used too little.

Education and vaccinations.

People may not know or value all the benefits. Fewer people buy it than is best for society.

A good the government thinks people should use less of because it harms people or society. In a free market it is often used too much.

Cigarettes and sugary drinks.

People may not know or may ignore the harm, or may be addicted. So demand is too high and too much is bought.

Buyers do not have full or correct facts about the costs or benefits. This leads to too little use of merit goods and too much use of demerit goods.

Merit goods can help others, like vaccines reducing the spread of disease. Demerit goods can harm others, like passive smoking.

No. Many merit goods are sold by private firms, like dental care. The government may also provide some because of the extra benefits.

To encourage more use of merit goods and to discourage use of demerit goods.

Free markets give too little of merit goods and too much of demerit goods compared with what is best for society.