Published On Mar 18, 2024
This economics revision video explains what merit and demerit goods are.
VIDEO CHAPTERS
00:00 Introduction
00:11 What are merit goods?
00:55 Examples of merit goods
02:03 Merit goods and market failure
02:43 Example: healthcare spending
03:11 What are demerit goods?
03:45 Examples of demerit goods
04:03 Demerit goods and value judgements
05:10 Demerit goods and imperfect information
05:40 Case study: smoking & vaping
07:04 Welfare analysis for demerit goods
VIDEO SUMMARY
The video is about Merit and Demerit Goods.
Merit goods are goods or services that governments believe people will tend to underconsume. There are two reasons why this might happen. First, people may not fully understand the benefits of consuming the good. Second, consumption of merit goods can lead to positive externalities, where the social benefit exceeds the private benefit. Examples of merit goods include education, healthcare, vaccinations, clean energy, and libraries.
Demerit goods are goods or services that are believed to have negative externalities or adverse effects on society. There are two reasons why this might happen. First, people may not be aware of the negative consequences of consuming the good. Second, producers of demerit goods might use misleading advertising to emphasize the immediate gratification of consuming the good. Examples of demerit goods include high caffeine energy drinks, high fat high sugar high salt foods, violent video games, hands-free cell phones in vehicles, alcohol, and tobacco.
The video concludes by discussing the welfare diagram for demerit goods. The welfare diagram shows that the social benefit of consuming a demerit good is less than the benefit to the individual. This is because the consumption of demerit goods leads to negative externalities. As a result, there is overconsumption of demerit goods relative to the optimal level.
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