economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics anal ...

, a demerit good is "a good 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. 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 An alcoholic beverage (also called an alcoholic drink, adult beverage, or a drink) is a drink that contains ethanol, a type of Alcohol (chemistry), alcohol that acts Alcohol (drug), as a drug and is produced by Ethanol fermentation, fermentat ...

s, recreational drugs,

gambling Gambling (also known as betting or gaming) is the wagering of something of value ("the stakes") on a random event with the intent of winning something else of value, where instances of strategy are discounted. Gambling thus requires three ele ...

junk food "Junk food" is a term used to describe food that is high in calories from sugar and/or fat, and possibly also sodium, but with little dietary fiber, protein, vitamins, minerals, or other important forms of nutritional value. It is also known ...

pornography Pornography (often shortened to porn or porno) is the portrayal of sexual subject matter for the exclusive purpose of sexual arousal. Primarily intended for adults,

, and

prostitution Prostitution is the business or practice of engaging in Sex work, sexual activity in exchange for payment. The definition of "sexual activity" varies, and is often defined as an activity requiring physical contact (e.g., sexual intercourse, n ...

. Because of the nature of these goods,

government A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government i ...

s often levy

taxes A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, o ...

on these goods (specifically, sin taxes), 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 In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be considered as unpriced goods involved in either co ...

. 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 thin paper for smoking. The cigarette is ignited at one end, causing it to smolder; the resulting smoke is orally inhaled via the opp ...

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

welfare economics Welfare economics is a branch of economics that uses microeconomic techniques to evaluate well-being (welfare) at the aggregate (economy-wide) level. Attempting to apply the principles of welfare economics gives rise to the field of public ec ...

, welfarism and

paternalism Paternalism is action that limits a person's or group's liberty or autonomy and is intended to promote their own good. Paternalism can also imply that the behavior is against or regardless of the will of a person, or also that the behavior expres ...

, 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