3.7 MERIT & DEMERIT GOODS
Merit Goods
Merit goods are goods and services that the government believes that individuals will under consume. Also, merit goods are excludable; meaning that if you could not afford to purchase one you would go without. Therefore the government either subsidises them or makes them completely free at the point of use so that consumption does not depend on the ability to pay. Consuming merit goods creates positive externalities. Examples of merit goods are education, health care, public libraries, museums and advice bureaus. Merit goods do not just have to be provided by the state. Education and health care are also provided by private organisations as well as being provided by the government.
Society must have to judge whether consuming the good increases our welfare so there is an act of value judgment, as each political party has different opinions. One political party may believe that education should be promoted even more and make higher education compulsory and free up until 21, whereas another may totally disagree.
Merit goods have an opportunity cost of supply to extra users. The more students that you enrol in school, the higher the cost will be. The opportunity cost would be the next best alternative that the government could have used the money for.
In the UK healthcare is free at the point of use. This means that individuals are not charged for what they consume.
Merit goods are goods and services that the government believes that individuals will under consume. Also, merit goods are excludable; meaning that if you could not afford to purchase one you would go without. Therefore the government either subsidises them or makes them completely free at the point of use so that consumption does not depend on the ability to pay. Consuming merit goods creates positive externalities. Examples of merit goods are education, health care, public libraries, museums and advice bureaus. Merit goods do not just have to be provided by the state. Education and health care are also provided by private organisations as well as being provided by the government.
Society must have to judge whether consuming the good increases our welfare so there is an act of value judgment, as each political party has different opinions. One political party may believe that education should be promoted even more and make higher education compulsory and free up until 21, whereas another may totally disagree.
Merit goods have an opportunity cost of supply to extra users. The more students that you enrol in school, the higher the cost will be. The opportunity cost would be the next best alternative that the government could have used the money for.
In the UK healthcare is free at the point of use. This means that individuals are not charged for what they consume.
Demerit Goods
Demerit goods are believed to be ‘bad’ for you. They involve opinions as to whether a good is bad or not, just like merit good (value judgment). Some examples of demerit goods are alcohol, smoking, drugs and gambling. The consumption of demerit goods can lead to externalities and they are consumed for various reasons, such as imperfect information. The government may try to intervene in the market if they believe that a good is a demerit good. They can do this through taxation on the producer or consumer. This increases the price of the good, which decreases the level of consumption. However, critics argue that the taxation is paid by those who are severely addicted and need to seek help. Maybe a better policy would be to inform people about the costs involved with demerit goods and then offer help to individuals to stop consuming it.
Demerit goods are believed to be ‘bad’ for you. They involve opinions as to whether a good is bad or not, just like merit good (value judgment). Some examples of demerit goods are alcohol, smoking, drugs and gambling. The consumption of demerit goods can lead to externalities and they are consumed for various reasons, such as imperfect information. The government may try to intervene in the market if they believe that a good is a demerit good. They can do this through taxation on the producer or consumer. This increases the price of the good, which decreases the level of consumption. However, critics argue that the taxation is paid by those who are severely addicted and need to seek help. Maybe a better policy would be to inform people about the costs involved with demerit goods and then offer help to individuals to stop consuming it.
Sugar-Tax
Across the world there is an increasing amount of individuals becoming obese and this is hugely costly to society through high health cost bills and a reduction in the quality of life of obese individuals. Diabetes costs the NHS £9 billion a year and around £8 billion is from type 2 diabetes. Type 2 diabetes has been linked to a bad diet and a high level of consumption of sugar. A question that could be asked is, “are products that have a high level of sugar demerit ones?” Over the last 10 or so years the government has introduced a law that has aimed to inform individuals about what nutritional values are in our foods. This then allows the user to make an informed decision as to whether they choose to consume the good or not. However, some argue that the government should go even further and place a tax on goods that have a high sugar content, such as fizzy drinks. In Mexico they have imposed a 10% tax on fizzy drinks and this has decreased consumption of these drinks by between 6-10%. Should the government here try and do the same?
Across the world there is an increasing amount of individuals becoming obese and this is hugely costly to society through high health cost bills and a reduction in the quality of life of obese individuals. Diabetes costs the NHS £9 billion a year and around £8 billion is from type 2 diabetes. Type 2 diabetes has been linked to a bad diet and a high level of consumption of sugar. A question that could be asked is, “are products that have a high level of sugar demerit ones?” Over the last 10 or so years the government has introduced a law that has aimed to inform individuals about what nutritional values are in our foods. This then allows the user to make an informed decision as to whether they choose to consume the good or not. However, some argue that the government should go even further and place a tax on goods that have a high sugar content, such as fizzy drinks. In Mexico they have imposed a 10% tax on fizzy drinks and this has decreased consumption of these drinks by between 6-10%. Should the government here try and do the same?
Drugs
How should drug use be controlled? Most developed countries have chosen to ban the majority of drugs and hope to solve the problem by making it illegal to supply or use drugs. However, some economists believe that a better way would be to legalise drug use, arguing that regulation is costly and inefficient. Some states in America have legalised cannabis and uses the tax revenue from sales to educate individuals over the costs of smoking it and as individuals will now know the costs they will reduce their level of consumption. A lack of information for demerit goods results in overconsumption.
How should drug use be controlled? Most developed countries have chosen to ban the majority of drugs and hope to solve the problem by making it illegal to supply or use drugs. However, some economists believe that a better way would be to legalise drug use, arguing that regulation is costly and inefficient. Some states in America have legalised cannabis and uses the tax revenue from sales to educate individuals over the costs of smoking it and as individuals will now know the costs they will reduce their level of consumption. A lack of information for demerit goods results in overconsumption.