What are demrit goods:
Demerit goods are products that are harmful to individuals and society, but are often over-consumed because people may not fully understand the risks or may ignore them. Examples include alcohol, cigarettes, drugs, sugary foods, and gambling. These goods cause negative side effects not just to the user but also to others around them (like second-hand smoke).
How do demerit goods impact an economy:
Higher Healthcare Costs:
More people suffer from diseases like cancer, heart problems, and addiction.
The government and society must spend more money on hospitals, treatments, and medical programs.
Lower Productivity:
Sick or addicted individuals often work less or miss work, lowering the overall efficiency of the workforce.
Businesses lose money due to absenteeism and lower performance.
Increased Government Spending:
Governments must spend on healthcare, rehabilitation programs, and public awareness campaigns to educate people about the dangers.
Social Problems:
There are more cases of crime, family problems, and accidents (e.g., drunk driving).
This creates more pressure on public services like police, courts, and social welfare systems.
Higher Taxes and Regulation:
To reduce consumption, governments often place heavy taxes on demerit goods (like cigarette and alcohol taxes).
This can bring some income for the government but also increases the cost of living for people who continue consuming these goods.
Market Failure:
Because people do not make the "best choice" for themselves or society, the market does not work efficiently, and government intervention becomes necessary.
THE END