👉Definition consumption externality
When you consume a good, it has a positive or negative externality on a third party.
👉Positive consumption externality
When the consumption of a good benefits others. Here are several examples:
Going to college. Your education benefits society as a whole
Taking antiviral medication to prevent the spread of infectious disease.
👉Definition of merit goods
There are two characteristics of a merit goods
1. People are unaware of the true personal gain. People, for example, underestimate the value of education or vaccinations.
2. Merit goods will also have a positive externality.
As a result, there will be under consumption of merit goods in a free market.
👉Merit Goods Examples
🏨Health Care - Many people underestimate the value of vaccinations. If people get vaccinated, there will be a personal advantage in terms of disease prevention. There will also be external benefits to the rest of society because it will aid lower disease prevalence in the overall population.
🏬Museums - the educational value of museums is often overlooked.
🍇Eating fruits and vegetables - Although a raw fruit diet has health benefits, we may favour unhealthy foods.
👨💼Education - People may underestimate the value of education and choose to drop out or get poor marks.
👉Positive consumption externalities
Positive consumption externalities are the spillover effects of consumption of a good or service on others. When a person consumes a merit good, the resulting positive externality benefits other people.
When people travel by train rather than by car, other people benefit by there being less congestion and exhaust and fewer accidents on the roads. Thus the marginal social benefit of rail travel is greater than the marginal private benefit.
Information is also provided by governments to persuade consumers to buy more goods that produce positive externalities. In most developed economies, people are urged to eat more fruit and vegetables to reduce the possible risk of health problems such as diabetes and obesity.