Up Learn – A Level economics (aqa)

Market Failure & Government Intervention

1. Intro: Negative Externalities (free trial)                                             
2. Negative Production Externalities (free trial)                                     
3. Negative Production Externalities: Diagram (free trial)                                               
4. Negative Production Externalities: Diagram Analysis (free trial)                                             
5. Alternative Negative Production Externality Diagram (free trial)                                             
6. How to Draw: Negative Production Externality Diagram (free trial)                                         
7. Negative Consumption Externality Diagram (free trial)                                              
8. Solving Negative Externalities: Tax (free trial)                                               
9. How to Draw: Solving Negative Externalities With Tax (free trial)                                           
10. Tradable Pollution Permits (free trial)                                               
11. Solving Negative Externalities: Minimum Price (free trial)                                          
12. Solving Negative Externalities: Regulation (free trial)
1. Positive Externalities Introduction (free trial)                                
2. Positive Consumption Externalities (free trial)                                
3. Positive Consumption Externalities: Diagram (free trial)                                
4. Positive Consumption Externalities Diagram Analysis (free trial)                                
5. Alternative Positive Consumption Externality Diagram (free trial)                                
6. Positive Production Externality Diagram (free trial)                                
7. Solving Positive Externalities: Subsidy (free trial)                                
8. Solving Positive Externalities: Max Prices (free trial)
1. (AQA) Public Goods (free trial)                                            
2. (AQA) Free-rider Problem (free trial)                                    
3. Public Goods: State Provision (free trial)                                          
4. (AQA) Quasi-Public Goods (free trial)
5. Tragedy of the Commons (free trial)
1. Information Gaps Intro (free trial)                                         
2. Incomplete Information: Underconsumption (free trial)                                              
3. Incomplete Information: Overconsumption (free trial)                                    
4. Asymmetric Information (free trial)
1. (AQA) Monopoly Power Video (free trial)                                          
2. (AQA) No Market Failure (free trial)
1. (AQA) Labour Market Failure (free trial)                                          
2. (AQA) Occupational Immobility (free trial)                                          
3. (AQA) Geographical Immobility Video (free trial)
1. (AQA) Inequitable Distribution (free trial)                                          
2. (AQA) Equality vs Equity (free trial)                                      
3. (AQA) Income vs Wealth (free trial)                                     
4. (AQA) Distribution of Income and Wealth (free trial)
5. Progressive Tax and Government Spending (free trial)
6. Evaluation of Progressive Tax (free trial)

We’ve now seen that merit goods are goods which are underconsumed because of either positive externalities or information gaps.

So demerit goods are…

Demerit goods are goods which are overconsumed because of either negative externalities or information gaps.

So cigarettes are a demerit good – they’re overconsumed because of their negative externalities (like how passive smoking can lead to lung cancer) and overconsumed because of information gaps (consumers, especially younger consumers, aren’t informed of the full health costs of smoking…like death!)

Alcohol is another demerit good – they’re also overconsumed because of their negative externalities (like how binge drinking can lead to drink driving and vandalism) and overconsumed because of information gaps (young consumer aren’t informed of the full health costs of alcohol – like liver disease and horrific hangovers)

Other demerit goods include: 

Video games – they don’t have any negative externalities, they don’t harm other people, but video games are still overconsumed because of information gaps (few people are informed on the health risks of video games, like video game addiction which can lead to obesity and mental illness). 

Or bagpipes – also a demerit good…there aren’t any information gaps here…but there are negative externalities: when you play your bagpipes, you annoy everyone around you!