Merit and Demerit Goods
Market Failure: Externalities and Common Pool Resources
AO2
Syllabus requirement
Merit goods are under-consumed and under-provided (e.g., education), while demerit goods are over-consumed (e.g., cigarettes).
Assessment objectives
AO2 Application and Analysis
Summary
This topic explains how markets can allocate resources inefficiently when private costs and benefits differ from social costs and benefits. It describes common outcomes of market failure — such as under‑ or over‑provision and consumption of goods — and gives examples including merit goods, demerit goods, public goods and monopoly abuse. Understanding these differences shows why government policy may be needed to correct market failures.
