1.8.5 Merit and demerit goods

• Merit goods are under-consumed in a free market due to positive externalities.


  True
• Steps leading to the under-provision of merit goods in a free market

  1️⃣ Merit goods have positive externalities

  2️⃣ Individuals only consider private benefits

  3️⃣ Under-consumption occurs

  4️⃣ Free market suppliers under-provide
• Match the government intervention strategy with its purpose for merit goods:

  Subsidies ↔️ Reduce the cost of merit goods

  Public provision ↔️ Ensure universal access

  Advertising ↔️ Increase awareness of benefits
• Vaccinations are considered a merit good because they reduce the spread of infectious diseases
• Match the government intervention strategy with its description:

  Subsidies ↔️ Financial support to lower costs

  Public provision ↔️ Direct supply by the government

  Advertising ↔️ Informative campaigns to raise awareness
• What are merit goods?

  Goods with positive externalities
• In a free market, suppliers under-provide merit goods because they focus on private demand
• What are examples of merit goods?

  Education, healthcare, vaccinations
• The profit motive of suppliers in a free market leads to the under-provision of merit goods.


  True
• Why are public parks and libraries considered merit goods?

  They provide educational and recreational opportunities
• What is the primary purpose of government intervention in the market for merit goods?

  Address under-provision
• Public provision ensures access to merit goods regardless of ability to pay.


  True
• What are positive externalities in the context of merit goods?

  Benefits to society
• The profit motive in a free market leads to the under-provision of merit goods.

  True
• Match the merit good with its positive externality:

  Healthcare ↔️ Reduced disease transmission

  Vaccinations ↔️ Protection of community

  Public parks ↔️ Educational opportunities

  Education ↔️ Increased productivity
• Demerit goods have negative externalities that impose costs on society.


  True
• Examples of demerit goods include cigarettes, alcohol, and unhealthy fast food
• Individuals consuming demerit goods prioritize their own private benefits over societal costs.


  True
• Match each demerit good with its negative externalities:

  Cigarettes ↔️ Health issues like lung cancer

  Alcohol ↔️ Drunk driving, domestic abuse

  Unhealthy fast food ↔️ Obesity, heart disease

  Gambling ↔️ Addiction, financial hardship
• Merit goods are under-consumed in a free market because individuals undervalue their societal benefits.

  True
• Match each merit good with its positive externalities:

  Education ↔️ Increased productivity, informed citizens

  Healthcare ↔️ Reduced disease transmission

  Vaccinations ↔️ Protection against infectious diseases

  Public parks and libraries ↔️ Recreational and educational opportunities
• What is the primary goal of subsidies for merit goods?

  Lower the price
• Governments intervene in the market for merit goods to address under-provision.


  True
• Match the intervention strategy with its purpose for merit goods:

  Subsidies ↔️ Lower prices

  Public Provision ↔️ Ensure access

  Advertising ↔️ Increase awareness
• In a free market, demerit goods are over-consumed because individuals ignore societal harms
• What are examples of demerit goods?

  Cigarettes, alcohol
• Why are demerit goods overprovided in a free market?

  Negative externalities ignored
• Match the demerit good with its negative externality:

  Cigarettes ↔️ Lung cancer

  Alcohol ↔️ Drunk driving

  Fast food ↔️ Obesity

  Gambling ↔️ Financial hardship
• Taxation of demerit goods is effective because it increases their price
• What is a potential drawback of taxation as an intervention strategy for demerit goods?

  Regressive impact
• Advertising campaigns for demerit goods aim to shift public attitudes
• Governments provide subsidies to lower the price
• Order the key aspects of merit goods according to their societal impact

  1️⃣ Positive externalities

  2️⃣ Under-consumption

  3️⃣ Under-production

  4️⃣ Examples: education, healthcare
• Positive externalities are not valued by consumers
• What is one positive externality of education as a merit good?

  Lower crime rates
• Government intervention aims to move the market closer to the socially optimal
• What is one characteristic of demerit goods in a free market?

  Over-production
• Demerit goods have negative externalities, which means they impose costs on society
• Order the stages in the over-provision of demerit goods in a free market.

  1️⃣ Negative externalities are not valued by consumers

  2️⃣ Free market is driven by private demand

  3️⃣ Profit motive encourages over-supply

  4️⃣ Over-consumption and over-production
• Merit goods have positive externalities, meaning they benefit society beyond the individual consumer