Demerit Goods and Market Failure: Evaluating Externalities and Imperfect Information

The video explores the concept of demerit goods, which are overprovided by the market and lead to overconsumption. It discusses the divergence between marginal private and social benefit curves due to negative consumption externalities, resulting in market failure. The video evaluates the extent of market failure based on the size of externalities and imperfect information. It highlights the challenges in calculating externalities and the role of consumer awareness. Finally, it discusses potential solutions and the risk of government failure.

Provide an example of a demerit good and analyze its external costs on society.

How does imperfect information contribute to the overconsumption of demerit goods?

What role does government intervention play in addressing the issues related to demerit goods?