Products which the government regards as harmful and will be over-consumed if left to market forces, such as tobacco, are called

Products which the government regards as harmful and will be over-consumed if left to market forces, such as tobacco, are called

• A. Merit Goods
• B. Demerit Goods
• C. Public Goods
• D. Private Goods

Answer: (B)

The main idea is demerit goods—those that produce negative effects on society and are likely to be over-consumed if left to market forces. They generate negative externalities, such as higher health costs and productivity losses that others bear, so the socially optimal level of consumption is lower than what individuals would choose on their own. Tobacco fits this idea: people may gain private satisfaction from smoking, but the broader health risks and costs to the healthcare system mean society would prefer less consumption. Government intervention—like higher taxes, age restrictions, and advertising bans—aims to reduce consumption to a safer, more socially desirable level. This is what distinguishes demerit goods from the others: merit goods are benefits that are often under-consumed without help (and may be subsidized or provided by the government), public goods are non-excludable and non-rivalrous and thus undersupplied by markets, and private goods are simply goods owned and traded in markets without inherent government bias toward their consumption.

The main idea is demerit goods—those that produce negative effects on society and are likely to be over-consumed if left to market forces. They generate negative externalities, such as higher health costs and productivity losses that others bear, so the socially optimal level of consumption is lower than what individuals would choose on their own. Tobacco fits this idea: people may gain private satisfaction from smoking, but the broader health risks and costs to the healthcare system mean society would prefer less consumption.

Government intervention—like higher taxes, age restrictions, and advertising bans—aims to reduce consumption to a safer, more socially desirable level. This is what distinguishes demerit goods from the others: merit goods are benefits that are often under-consumed without help (and may be subsidized or provided by the government), public goods are non-excludable and non-rivalrous and thus undersupplied by markets, and private goods are simply goods owned and traded in markets without inherent government bias toward their consumption.