Demerit goods and Merit goods - Welfare loss
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Welfare loss for demerit goods
The welfare loss associated with the 'over-consumption' of a demerit good is the quantity Q1 to Q2.
Welfare loss for merit goods
The welfare loss associated with the 'under-consumption' of a merit good is the quantity Q1 to Q2.
There will be a net welfare loss, as shown by the shaded area.
The welfare loss is represented by the shaded area.