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Demerit Goods & Government Action to Correct Market Failure George Joji Sawamura.

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Presentation on theme: "Demerit Goods & Government Action to Correct Market Failure George Joji Sawamura."— Presentation transcript:

1 Demerit Goods & Government Action to Correct Market Failure George Joji Sawamura

2 Demerit Good A good or service available for purchase within the market that is socially damaging, due to production of negative externalities through consumption and supply of that product. Negative externalities are costs that are impossible to charge to provide. In other words social costs created as a consequence of use and purchase of a demerit good. A demerit good is the opposite of a merit good.

3 A Bold Plan to Aid Sex- Trafficking Victims The New York Times, September 26, 2013 The article talks about how sex-trafficking has increased in size in the united states. It shows how former prostitutes of the sex trade are treated as criminals. Because they carry criminal records, it is harder for them to be employed, gain financial aid, have government benefits, have safe housings, and gain immigration status. The article talks about lawyers and defendants who are trying to create a government based protection and support system for sex-trafficking victims through the court.

4 Prostitution is a demerit good, because it is a service that has a clear damage to the people outside of the direct transaction of its consumer and seller. The marginal personal benefit from prostitution is larger than the marginal social benefit. As a result of the gap, the negative externality, it leaves a great amount of welfare loss of people who are with lower education, mental and physical damage, and financially weak. z"Demerit Goods and Merit Goods." Demerit Goods and Merit Goods. N.p., n.d. Web. 24 Oct

5 Global Health Watch: UK bans displaying cigarettes, tobacco products By Janet Stobart, Los Angeles Times This article shows how Britains Department of Health announced a ban on displaying cigarettes in stores around England, in able to reduce the smoking population. Explanation: Cigarette is a demerit good that has been a cause of deaths in England, each year.

6 Government intervention Selfishness leads people to want to become rich, create products that people are willing able to pay, whether it is good or bad for the society. Because people are selfish, the argument is that individuals are not accountable for themselves and others welfare, hence there is a need for government intervention to eliminate the use and production of demerit goods.

7 Government Intervention Method: TAXES Taxes on the demerit good can reduce the personal cost of producers and consumers by raising the prices.

8 Negative advertisement Use of negative advertisement that discourages people from using and buying the demerit good can decrease the consumer taste.

9 Subsidy In some cases, the reason why firms may produce or consumers may use demerit goods because of the cheaper costs. It is one way for a government to subsidize and cover the extra cost to stop the use and production of a demerit good. For example, a government can decide to subsidize the price of hybrid cars so that people will stop using cars with CO2 emission. "Demerit Goods." Demerit Goods. N.p., n.d. Web. 24 Oct

10 A Complete Ban The graph shows that there is a higher cost then benefit at all times when this demerit good exists. In this case, there would be a complete ban of the demerit good. "Demerit Goods." Demerit Goods. N.p., n.d. Web. 24 Oct

11 Stobart, Janet. "Global Health Watch: UK bans displaying cigarettes, tobacco products." Los Angeles Times. Los Angeles Times, 9 Mar Web. 24 Oct "demerit good." BusinessDictionary.com. N.p., n.d. Web. 24 Oct "Demerit Goods and Merit Goods." Demerit Goods and Merit Goods. N.p., n.d. Web. 24 Oct "Externalities." : The Concise Encyclopedia of Economics. N.p., n.d. Web. 24 Oct "Demerit Goods." Demerit Goods. N.p., n.d. Web. 24 Oct


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