ECONOMICS (CBSE/UGC NET)

ECONOMICS

MARKET FAILURES

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
If society thinks that the market provides too much, it is because it is a ____
A
Demerit good
B
Merit good
C
Either A or B
D
None of the above
Explanation: 

Detailed explanation-1: -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"; it could be over-consumed if left to market forces.

Detailed explanation-2: -A good that is over-provided by the market and as a result becomes over-consumed by consumers. Tobacco, alcohol and fast food are all examples of this type of good. This is the opposite of a merit good.

Detailed explanation-3: -Demerit goods are goods which are deemed to be socially undesirable, and which are likely to be over-produced and over-consumed through the market mechanism. Examples of demerit goods are cigarettes, alcohol and all other addictive drugs such as heroine and cocaine.

Detailed explanation-4: -A demerit good is defined as “a good or service the consumption of which is regarded unhealthy, demeaning, or otherwise socially inappropriate due to the perceived negative impacts on the consumers themself” in economics; if left to free market forces, it might be over – consumed.

There is 1 question to complete.