6.4 Merit Goods, Demerit Goods, and Information Failure

Merit goods are considered desirable for consumers but are underprovided by the market.

Governments provide merit goods to ensure that only wealthy individuals can access them.

An inoculation against contagious diseases is a merit good because it benefits both the individual and society.

Education and healthcare are common examples of demerit goods.

Demerit goods are considered undesirable for consumers and are overprovided by the market.

Governments do not intervene in the consumption of demerit goods such as tobacco and junk food.

Overconsumption of demerit goods can lead to negative externalities.

Playing loud music at a sports match can be considered a merit good.

Information failure occurs when consumers lack sufficient information to make informed decisions.

Information failure always leads to the underconsumption of demerit goods.

Governments may intervene in markets by regulating misleading advertising to correct information failure.

The free market always ensures that consumers have perfect information about all products.

Better labelling on food, drink, and medicines can help consumers make informed purchasing decisions.

Governments may use taxes and regulations to address the negative effects of demerit goods.

Merit goods tend to be overconsumed in a free market.

Low income is a major reason for the underconsumption of merit goods such as healthcare and education.

Demerit goods provide only private benefits and have no external costs to society.

Governments often subsidize merit goods to encourage higher consumption.

Tobacco and junk food are examples of merit goods.

Providing free healthcare and education can help correct market failures caused by information failure and affordability issues.