Demerit good

Demerit goods, on the other hand, are those products that are worse for the individual consumer than the individual realises.

Due to information failure, demerit goods tend to be

overproduced and

overconsumed.


For example, when a person makes a decision to smoke, he is not fully in possession of all of the information concerning the harmful effects of smoking.



Passive smoking can also cause negative externalities.



This causes costs to non-smokers in the form of discomfort and respiratory problems where there is extensive exposure.