Demerit good

In economics, a demerit good is "a good or service whose consumption is considered unhealthy, degrading, or otherwise socially undesirable due to the perceived negative effects on the consumers themselves".^[1]^[2]^[3] It is over-consumed if left to market forces. Examples of demerit goods include tobacco, alcoholic beverages, recreational drugs, gambling, junk food and prostitution. Because of the nature of these goods, governments often levy taxes on these goods (specifically, sin taxes), in some cases regulating or banning consumption or advertisement of these goods.^[4]

Concept

There is an important conceptual distinction between a demerit good and a negative externality. A negative externality occurs when the consumption of a good has measurable negative consequences on others who do not consume the good themselves.^[5] Pollution (due, for example, to automobile use) is the canonical example of a negative externality. Another example is cigarettes. It not only affects a deliberate or addicted smoker through damage to health, but also indirect smokers exposed to the smoke (second hand smoking). By contrast, a demerit good is viewed as undesirable because its consumption has negative effects upon the consumer.

Two fundamental views in welfare economics, welfarism and paternalism, differ in their conceptual treatment of 'demerit goods'. Simply, welfarism takes the individual's own perception of the utility of a good as the final judgement of the utility of the good for that person, and thereby disallows the concept of a 'demerit good' (while allowing the analysis of negative externalities). As an extreme example, if a heroin addict purchases heroin, they must have done so because heroin makes them better off, and this transaction is viewed as a net social positive (assuming that the addict does not commit any other crimes as the result of their addiction). Paternalism, on the other hand, judges that heroin "isn't good for you", and feels free to override the judgement of the addicts themselves (see 'Welfare Economics, Boadway and Bruce, Basil Blackwell 1984).

References

↑ "Demerit Good Law & Legal Definition". USLegal.com.
↑ "Definition of demerit good". BusinessDictionary.
↑ Pettinger, Tejvan (November 28, 2012). "Demerit good definition". Economics Help.
↑ "Government responses - demerit goods". sanandres.esc.edu.ar.
↑ "Demerit Goods". Economics Online.

Types of goods

Public goods Private goods (includes household goods) Common goods Common-pool resource Club goods Anti-rival goods Global public goods Global commons

(Non-)Rivalrous goods and (Non-)Excludable goods

Complementary goods vs. Substitute goods vs. Independent goods

Free goods vs. Positional goods

(Non-)Durable goods Intermediate goods (producer goods) Final goods Capital goods

Inferior goods Normal goods (Necessity goods) Neutral goods Ordinary goods Giffen goods Luxury goods Veblen goods Superior goods

Search goods (Post-)Experience goods Credence goods

Merit goods Demerit goods

Damaged goods Composite goods Intangible goods

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Demerit good

Concept

See also

References

Further reading