economics Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interac ...

, a demerit good is "a

good In most contexts, the concept of good denotes the conduct that should be preferred when posed with a choice between possible actions. Good is generally considered to be the opposite of evil. The specific meaning and etymology of the term and its ...

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 of

supply and demand In microeconomics, supply and demand is an economic model of price determination in a Market (economics), market. It postulates that, Ceteris_paribus#Applications, holding all else equal, the unit price for a particular Good (economics), good ...

. Examples of demerit goods include

tobacco Tobacco is the common name of several plants in the genus '' Nicotiana'' of the family Solanaceae, and the general term for any product prepared from the cured leaves of these plants. More than 70 species of tobacco are known, but the ...

alcoholic beverage Drinks containing alcohol (drug), alcohol are typically divided into three classes—beers, wines, and Distilled beverage, spirits—with alcohol content typically between 3% and 50%. Drinks with less than 0.5% are sometimes considered Non-al ...

recreational drugs Recreation is an activity of leisure, leisure being discretionary time. The "need to do something for recreation" is an essential element of human biology and psychology. Recreational activities are often done for enjoyment, amusement, or plea ...

gambling Gambling (also known as betting or gaming) is the wagering of something of Value (economics), value ("the stakes") on a Event (probability theory), random event with the intent of winning something else of value, where instances of strategy (ga ...

and junk food. Because of the nature of these goods,

government A government is the system or group of people governing an organized community, generally a State (polity), state. In the case of its broad associative definition, government normally consists of legislature, executive (government), execu ...

s often levy

taxes A tax is a mandatory financial charge or levy imposed on an individual or legal entity by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities. Tax co ...

on these goods (specifically,

sin tax A sin tax (also known as a sumptuary tax, or vice tax) is an excise tax specifically levied on certain goods deemed harmful to society and individuals, such as Alcohol tax, alcohol, tobacco tax, tobacco, drugs, candy, soft drinks, fast foods, c ...

es), in some cases regulating or banning consumption or advertisement of these goods.

Concept

There is an important conceptual distinction between a demerit good and a negative externality. A negative externality occurs when the consumption of a good has measurable negative consequences on others who do not consume the good themselves. Pollution (due, for example, to automobile use) is the canonical example of a negative externality. By contrast, a demerit good is considered as undesirable because its consumption has negative effects upon the consumer.

Cigarette A cigarette is a narrow cylinder containing a combustible material, typically tobacco, that is rolled into Rolling paper, thin paper for smoking. The cigarette is ignited at one end, causing it to smolder; the resulting smoke is orally inhale ...

s have both properties: they are a demerit good because they damage the smoker's own health and also produce the negative externality of damage to others by second-hand smoke. Two fundamental opinions of

welfare economics Welfare economics is a field of economics that applies microeconomic techniques to evaluate the overall well-being (welfare) of a society. The principles of welfare economics are often used to inform public economics, which focuses on the ...

welfarism In ethics, welfarism is a theory that well-being, what is good for someone or what makes a life worth living, is the only thing that has intrinsic value. In its most general sense, it can be defined as descriptive theory about what has value but ...

and paternalism, differ in their conceptual treatment of "demerit goods". Simply, welfarism considers the individual's ''own'' perception of the utility of a good as the final judgement of the utility of the good for that person, and thereby disallows the concept of a 'demerit good' (while allowing the analysis of negative externalities). As an extreme example, if a heroin addict purchases heroin, they must have done so because heroin makes them better somehow, and this transaction is considered therefore as a net social positive (assuming that the addict does not commit any other crimes as the result of their addiction). Paternalism judges that heroin "isn't good for you", and feels free to override the judgement of the addicts themselves.

Concept

See also

References

Further reading