What is a Demerit Good?

• What is a Demerit Good?:

  • A demerit good will operate where private benefit is greater than social benefit.​
• • Demerit goods are over provided by the market​
  • These goods produce negative externalities which are deemed to be bad for society ​
• • The over-consumption of demerit goods leads to market failure​ as they value their personal utility
• Taxes on demerit goods will reduce consumption and increase revenue for the government
• Government intervention can correct this failure through taxation or regulation.
• People often make irrational choices when consuming demerit goods due to addiction or peer pressure.
• • There is a negative externality from consuming the good so the government is likely to intervene to reduce consumption for the good of society.​