Question

Everything about demerit goods

Answer 1

Demerit goods are those goods or services that are not good (harmful) for health of consumers, but people have been needing and consuming.  These are not so valuable and do not have as much value to them as the consumers think.  We assume that people do not know about the demerits of these goods or they are irrational in choosing to consume them.

Some of them are  alcohol, cigarettes etc.  These are allowed under law, but not supposed to be good for children or moral or family life of people, if taken in excess quantities or if people are addicted to them.

There is an increasing tendency of these goods and services as time is progressing. So government levies good tax on them to control it as well as to get more income.

SOme times we cannot classify some goods as merit goods or demerit goods easily.  Vehicles cause pollution and cause health problem to every one.  Contraceptives are not demerit goods even though some religions say it is not right.  Prostitution, gutka, tobacco, races, betting in games, casino gambling services are demerit goods.  Some of them are not legal in some areas and are legal in some areas.