Merit goods are a concept first introduced By Richard Musgrave in 1957. Merit goods are goods that are considered worthy of being consumed by all, regardless of consumer’s willingness or ability to pay (Musgrave, 1959). Consumers receive a strong benefit from merit goods, whether or not they recognize it. There are several reasons that a consumer could fail to see the correct worth of a good, whether through lack of complete information, distorted preferences due to advertising, or overvaluing the short term costs compared to long term benefits. Musgrave believed that “there may arise a distortion in the preference structure that needs to be counteracted” (Musgrave, 1959), mainly through government intervention, in the form of full or partial
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Therefore government intervention is required to help limit the consumption of these goods. An example of a demerit good alcohol and its abuse which is a significant problem in New Zealand. New Zealand has a strong culture of binge drinking (Towl, 2004) . Binge drinking has numerous adverse health effects, including risk of brain damage and death, and increased risks of cancer in the long term. There are also negative social effects of binge drinking, which can include increased violence and accidents, and a greater risk of unwanted sexual activity (Towl, 2004). The concepts of demerit and merit goods are goods which are perceived to be objectively good or bad for the consumer, but will not be consumed in the appropriate amounts if left to consumer …show more content…
Externalities are consequences, either positive or negative, that the consumption of a particular good has on those not consuming the said good. Education is a merit good, as it produces a greater quality of life for those who consume it. However it also has positive externalities, as it can create a stronger economy through creating more productive workers (Psacharopoulos, 1996). Alcohol abuse in the form of binge drinking also creates externalities, although these externalities are negative. Binge drinking creates a negative externality in the form of increased crime levels within society, and increased risk of car accidents. These can affect everyone, regardless of what their personal views on the consumption of alcohol are. Externalities often require government intervention, as the consequences of the consumption or production of the good are not felt directly by those consuming or producing the good, but instead by society as a whole. Therefore market forces are not adequate to control the supply and demand, as market forces cannot represent the true utility and price of the goods. Government intervention in the case of education is implemented by making basic schooling compulsory, which began in New Zealand in 1877 with The Education Act. New Zealand also has a minimum leaving age of 16, which
Therefore government intervention is required to help limit the consumption of these goods. An example of a demerit good alcohol and its abuse which is a significant problem in New Zealand. New Zealand has a strong culture of binge drinking (Towl, 2004) . Binge drinking has numerous adverse health effects, including risk of brain damage and death, and increased risks of cancer in the long term. There are also negative social effects of binge drinking, which can include increased violence and accidents, and a greater risk of unwanted sexual activity (Towl, 2004). The concepts of demerit and merit goods are goods which are perceived to be objectively good or bad for the consumer, but will not be consumed in the appropriate amounts if left to consumer …show more content…
Externalities are consequences, either positive or negative, that the consumption of a particular good has on those not consuming the said good. Education is a merit good, as it produces a greater quality of life for those who consume it. However it also has positive externalities, as it can create a stronger economy through creating more productive workers (Psacharopoulos, 1996). Alcohol abuse in the form of binge drinking also creates externalities, although these externalities are negative. Binge drinking creates a negative externality in the form of increased crime levels within society, and increased risk of car accidents. These can affect everyone, regardless of what their personal views on the consumption of alcohol are. Externalities often require government intervention, as the consequences of the consumption or production of the good are not felt directly by those consuming or producing the good, but instead by society as a whole. Therefore market forces are not adequate to control the supply and demand, as market forces cannot represent the true utility and price of the goods. Government intervention in the case of education is implemented by making basic schooling compulsory, which began in New Zealand in 1877 with The Education Act. New Zealand also has a minimum leaving age of 16, which