Merit and demerit goods

About two weeks ago we had a very productive workshop with a small group of IB teachers. We exchanged several ideas on how to go forward with our project, and one thing was clear: What teachers need the most at the moment are case studies and suggestions that relate the IB guide to a 21st century approach to economics.

One of the teachers was so kind to send us the recently adapted IB guide and a selection of exam questions that use real life examples. So, we went to work. 

When I went over the past IB paper questions my attention was attracted by the questions about merit and demerit goods. In this post I want to share some of my reflections on this topic with you. 

As a teacher, I would not dwell on the definition of merit and demerit goods. There were ample examples at hand, and I was focussed on the micro-economic analysis of government intervention. But when I came across both concepts in the exam questions, while I looked through the lens of the doughnut framework, something started to nag. 

This was caused by the question I asked myself: “Can you also think of fossil fuel cars as a demerit good?” Then I asked myself: “How are fossil fuel cars different from smoking – the usual suspect?”. This brought into focus the need to define merit and demerit goods. Both from an individual and social perspective.

Take smoking. My father used to smoke, and when we were going on vacation or visiting family, he would light a cigarette, for these were long trips. I would sit on the backbench with my brother and sister and I was disgusted by the cigarette smoke that much – I was sitting right behind him – that I would cover my nose and mouth, like a face mask, to prevent myself from inhaling the smoke. The disadvantages of passive smoking were known to me from a young age. I was delighted when my father quit smoking – for him and his health, and for myself.

But when other people smoke, not related to me, why would I care? The argument often given is because of the cost of healthcare. This argument causes me to look back to another moment in history, when I had a talk with some students in the hallway of the school where I used to teach. You know how young people are, they often want to try you out, so when the conversation arrived at smoking or not smoking they were positive I would, as an economics teacher, preach about the cost for society of smoking. 

Now the situation was such that I recently read about economic research on that topic, and as it turned out, the cost of healthcare is not higher as a result of smoking. The simple reason being that smokers have a lower life-expectancy and die before they generate the cost of healthcare that comes with old(er) age. So, maybe you could argue that smoking is in fact a benefit to society, as long as they, the smokers, keep out of the way of non-smokers. But I am afraid I cannot substantiate my claim, because this was some time ago.

The point I want to make, however, is that the question whether smoking is a demerit good, boils down to value judgement. When the cost of healthcare is eliminated, why should I care about someone smoking or not smoking, as long as they do not smoke in my presence?

So, with this question in mind, I decided to consult some colleagues and I was happy to find two tutorials on the Tutor2u website, in which the tutor repeatedly stressed that merit goods and demerit goods involve a value judgement. With the jury no longer out on that, I believe I am allowed to add some newcomers to the list of demerit goods:

  • fossil fueled cars
  • vacation trips by airplane
  • meat
  • fertilizers

I can hear you thinking: “I do not agree!” – it would be an exception if we could agree on all of these. Maybe you even want to add some of your own – please do add these to the comments, which will be open for a period of two weeks. When I am in a good mood, I may even add electric cars to the list. 

To define, however, how detrimental these goods really are for society and individuals, and how beneficial for that matter, we are in need of an approach. And that may very well be the topic of my next post.


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