merit and demerit goods grade 11 economics. objectives define and give examples of merit and demerit...
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Merit and Demerit goodsGrade 11 Economics
Objectives
• Define and give examples of merit and demerit goods.
• Analyse the over-, and under-consumption of these goods, hence market failures.
• Evaluate government policies concerned with merit and demerit goods.
Key Words
Demand CurveSupply CurveMerit GoodsDemerit GoodsMarket EquilibriumSurplusShortage
Private BenefitSocial BenefitExternalities
Demerit Goods• Goods which are ‘bad for you’.• A good such as tobacco for which the social costs to society of
consumption exceed the private costs incurred by the consumer.
• Consumption causes negative externalities to society.• Costs include money spent on goods and health damage.
Brainstorm of Demerit Goods
Demerit Goods
Z
Alcohol
Y
X
Now think about the last time you consumed each of
these!!
Over Production of Demerit Goods
Cost
& B
enefi
ts
Quantity Supply
6
5
4
3
2
1
0Q1
Marginal Private Cost
Marginal Benefits
Q3Q2
Marginal Social Cost
Why do people Over Consume Demerit Goods?• People have imperfect
information, as they are unaware of long term health effects.
• Or they are addicted…or both.
• The government seeks to reduce the consumption of demerit goods.
Merit Goods• Goods that would be under-consumed in a free market, as
individuals do not fully understand the benefits obtained from consumption.
• Ought to be subsidised or free at point of use.• Social benefits exceed the private benefits.
Brainstorm of Merit Goods
Merit Goods
Museum
NHS
Y
X
Now think about the last time you consumed each of
these……
Production Shortage of Merit Goods
Cost
& B
enefi
ts
Quantity Supply
6
5
4
3
2
1
0Q1
Marginal Private Cost
Marginal Private Benefits
Marginal Social Benefits
Q3 Q2
Why do people under consume merit goods?
People may not act in their best interest due to imperfect information (not knowing that it is beneficial to consume these goods in the long run).
Complete Following Table
Merit Goods Merit or Demerit? Demerit Goods
• Petrol• Healthcare• Abortion• Car Seat Belts• Crash Helmets• Alcohol• Tobacco
• Heroin• Museums• Parks• Lighthouses• BioFuel Cars• McDonalds• Sweets• Marijuana