Description

Points
goods are goods which are believed to be socia lly
Meaning 1. Demerit negative externalities.
undesirable and involve high level of
and
private costs incurred by individual con sumers are less
2. Also, the
Example by the society
than the social costs experienced alcohol, intoxicating
cigarettes,
3. Exanples of demerit goods are
drugs etc.
More than optimal production and consumption.
Characterist 1. high level of negtive externalities.
undesirable and involve
ics leading 2. Socially
price
to need of 3. Marginal social cost > market
scarce re sources.
intervention 4. Misallocation of society's goods because of imperfect
overvalue demerit
5. Consumers
information.
government may enforce complete
Need for 1. Complete ban: At the extreme, drugs. In such cases, the
ban on a demerit good. e.g. Intoxicating
Intervenion is made illegal.
Nova possession, tradingor consumption of the good
be achieved by negative
2. Persuasion which is mainly intended to
dangers associated
advertising cartpaigns which emphasize the
with consumption of demerit goods.
advertising or promotion of
3. Through legisiations that prohibit the
demerit goods in whatsoever manner. (Liquor Adv.Ban)
be put in place
4. Strict regulations of the market for the good may
groups
so as to limit access to the good, especially by vålnerable
such as children and adolescents.
e.g.
5. Regulatory controls in the form of spatial restrictions
smoking in public places, sale of tobacco to be away from schools,
and time restrictions under which sale at particular times during
the day is banned.
6. Imposing unusually high taxes on producing or purchasing the
good making them very costly and unaffordable to many is perhaps
the most commonly used method for reducing the consumption of
a demerit good. For example, the GST Council has bracketed four
items namely, high end cars, pan masala, aerated drinks and
tobacco products
Government Intervention may not have desired effect due to the following
Reason why
Govt. fails 1. Addiction level of the consumer causes consumption in-spite of
to provide control measures.
such 2. It is difficult to detemine the level of taxes that will equal to the
measures Marginal external cost and the impact of Negative externalities.
3. Inelastic nature of demand of demerit goods is such that the
CA Aditya Sharma V Smart Academy 7887788707 Page No. 2.14