ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Demerit goods are more harmful to consumers than they realize and they generate external costs. For example, cigarettes are a demerit good. ADVERTISEMENTS: Some people do not fully realize the damage, smoking inflicts on their health.

Detailed explanation-2: -How demerit goods affect the society? Consuming a demerit good creates negative spillover effects. For example, if a driver consumes excessive alcohol and then crashes into an innocent driver causing damage to their vehicle, a negative consumption externality has arisen.

Detailed explanation-3: -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-4: -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-5: -That will clearly mean better health for citizens and a more productive workforce. This is a clear example of a merit good, the production of which the Government will want to encourage. Demerit goods or services, in contrast, are those known to cause clear harm when produced and consumed.