A Level Economics AQA Practice Exam

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What defines demerit goods?

Under-consumed goods that have positive externalities
Goods viewed as desirable but not provided enough
Goods considered harmful and over-consumed
Goods with no social benefits

The correct answer is: Goods considered harmful and over-consumed

Demerit goods are defined as goods that are considered harmful to individuals and society as a whole and are often over-consumed. This classification arises because their consumption can lead to negative externalities, such as health problems, increased crime rates, or social issues. Individuals may underestimate or overlook the risks associated with these goods, leading to higher consumption levels than is socially optimal. The recognition of demerit goods is essential in economics, as it supports the rationale for government intervention. Policymakers may choose to impose taxes, regulations, or restrictions on these goods to reduce their consumption and alleviate the associated negative impacts on society. Therefore, understanding demerit goods allows us to analyze the implications of consumption patterns and the role of government in addressing market failures linked to such goods.