Cambridge International as and a level Economics Ebook

information failure
to the consumer. Th
is 
arises because consumers do not perceive quite how good 
or bad a particular product is for them: either they do not 
have the right information or they simply lack some relevant 
information. Th
is is why merit goods are provided by the 
government for those who are deemed to need them.
Information failure: 
where people do not have full or 
complete information.
KEY TERM
Merit goods
With this idea of a failure of information, a merit good 
is defi ned as a good that is better for a person than the 
person who may consume the good realises. Given this 
defi nition, education is oft en defi ned as a merit good. 
Th
e individuals who make decisions about how much 
education to receive (or how much to allow their children 
to receive) do not fully appreciate quite how much benefi t 
will be received through being well-educated. We do not 
always appreciate how good education is for us. We do not 
perceive its full benefi ts at the time of making the decision 
about how much education to receive.
Demerit goods
Demerit goods, on the other hand, are those products that 
are worse for the individual consumer than the individual 
realises. Junk food is a good example here. It is suggested 
that when a person makes a decision to eat junk food, he 
or she is not fully in possession of all of the information 
concerning the harmful eff ects of junk food. If he or she 
were in possession of such information, then they would 
be more reluctant to eat fast foods and more likely to focus 
on a healthy diet.
Junk food may be classed as demerit goods
Merit goods, demerit goods and value 
judgements
It may have been noticed in the above defi nitions that a 
signifi cant question poses itself with regard to merit and 
demerit goods. Who is to say what is ‘good’ or ‘bad’ for a 
person? If an individual consumer makes a presumably 
rational decision to consume a product, what right has 
the rest of society to say that he or she is making a ‘wrong’ 
decision? It seems clear that if this is what is going on, 
we have entered the area of value judgements. If society 
is able to say to consumers that they do not fully realise 
what is good or bad for them, then we are accepting that 
‘society knows best’ and has some right to make such a 
judgement. In eff ect, we are allowing 
paternalism
and we 
are saying that it is acceptable for society to judge what is, 
or is not, good for a person regardless of what that person 
may believe.