Such products may be subject to positive and negative externalities in consumption
Merit goods create positive externalities — benefits that spill over to people beyond the buyer. Demerit goods create negative externalities — costs that fall on others who never chose to consume the good.
Real World
When the UK government subsidises flu vaccinations, the positive externality is that unvaccinated people also benefit from reduced transmission — a spillover benefit they never paid for.
Exam Focus
Always distinguish between private and social benefit/cost; draw a diagram showing MSB > MPB or MSC > MPC to secure full marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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