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Demerit Goods: Definition & Examples

Instructor: Brianna Whiting
In this lesson we will look at demerit goods. We will define these goods, provide examples, and relate them to a real life example. The lesson will conclude with a summary and a quiz.

Can Products Really Be Bad?

Imagine that you own a grocery store. You sell all sorts of food and other items, ranging from paper towels to bottles of wine. Business is generally very good, and consumers in town appreciate the products you offer. But one day, a disgruntled customer comes into the store and complains about some of the goods you sell. He feels that by selling alcohol and tobacco products, your store is supporting the consumption of these goods, which can have a negative impact on people. The items this man is complaining about are called demerit goods.

Demerit Goods Defined

So what exactly is a demerit good? Well, a demerit good is a good that is regarded as unhealthy or that can negatively affect the consumer. These goods can also cause damage to consumers in ways they may or may not be aware of. Demerit goods are also said to sometimes cause harmful effects to those other than the consumer -- think of secondhand cigarette smoke, which affects not just smokers, but those around them as well.

Lastly, many people believe that such goods should be monitored by the government in hopes of discouraging their consumption. This is done in many states by way of higher taxes and penalties for sale and/or possession of these goods.

Examples

Now that we know what a demerit good is, let's look at some examples.

  • tobacco
  • alcohol
  • drugs
  • sexually explicit literature
  • teaching unconventional doctrines

Applying Demerit Goods to Real Life

Let's now apply the above information to a real life scenario that can help better explain what demerit goods are and why they are sometimes given an additional tax. Let's look at cigarettes.

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