Discussion of Demerit Goods - Essay Example

Definition and discussion of demerit goods Name Course Institution Tutor Date Demerit goods Demerit goods are those goods that are considered harmful or dangerous for any consumption. These goods create a negative utility when consumed (Plott 1983: 369). The goods form a lower utility level to the consumer than he or she believes. The examples of demerit goods are cigarettes, alcohol and drugs. In the definition of demerit goods, the assumption underlying the definition is that people who consume these goods are irrational (Plott 1983: 369). Their being irrational leads them to poor decision making and poor choices such that they consume harmful goods without care of the effects (Plott 1983: 369). Demerit goods are branded with two characteristics. The first characteristic is that they are harmful to individual consumption, and the second is that they are branded with negative externalities (Plott 1983: 369). Their costs are normally transferred to the third party. For instance, the consumption of alcohol transfers costs to third party i.e. increased crime rates and increased costs in treating diseases. It is important to know the line distinguishing goods with negative externalities, yet they do not fall under the category of demerit goods such as driving a car (Plott 1983: 369). A car emits pollution to the air which is an external negative cost and harmful to another party (Plott 1983: 369). The free market is sharply affected by the negative factors of demerit goods. The main reason is that the social cost exceeds the private cost (Gilleard 2009: 23). Consumers of such goods experience lack of proper information or they are ignorant even where they have relevant information about the products (Gilleard 2009: 23). These factors make the products inherit into the consumers long term costs. Reasons for overconsumption Overconsumption is defined as the exceeding resource use grows larger than the sustainability capacity of the ecosystem. Overconsumption leads to inevitable environmental degradation and eventually the resources become scarce to sustain further consumption (Schafer 2011: 175). It is believed that the more people or population increases, the more consumption of resources. There are several reasons why there are instances of overconsumption more than is good for an individual (Schafer 2011: 178). The first reason is short working hours. Those individuals faced with such scenarios are mostly left with a choice of over consuming products. The second factor is high productivity ratios where a consumer is prone to a choice of overconsumption so that the economy can keep going (Schafer 2011: 179). A fall in individual consumption will lead to a drop in the economy. The third factor is individual expectations of higher living standards. The fourth reason is accrued from industry driven stimulation to individual consumption. The industries create demand for their newly created products and stimulate customers to purchase so that they can derive external satisfaction (Schafer 2011: 180). There are reasons why there exists consumption that is more than good for the society. The first reason is too much debt i.e. credit cards. Debts ensure that individuals are in position to acquire the goods they need in advance (Mason 2004: 52-3). This creates bad effect to the economy such that the debts. Accumulate and cause stress to people. In return, the people degrade the society trying to pay their debts (Mason 2004: 52-4). The next reason is too much care for possessions such that people do not care for the society but wealth. The third reason is the desire to upscale lifestyle norms. The fourth reason is too much interest in keeping up with evolving trends (Mason 2004: 52-4). Adopted from (Schafer 2011: 175) Ways of reducing overconsumption Market based approach Taxation is the first market based approach. An increase in taxation will lead to a lower consumption of products. For example, the consumption of cigarettes; the more tax is imposed on it the lesser people will consume it (Alcott 2008: 770). If alcohol is taxed more than a certain capacity, then the consumers will result to lower consumption reducing the impact of overconsumption (Alcott 2008: 772). The government may decide to offer subsidies to companies developing merit goods in order to reduce the usage of demerit goods (Dan & Martin 1994: 369). Subsidies play an important role in enhancing production of safe products and reducing overconsumption of harmful products (Dan & Martin 1994: 370). For instance, most governments around the world offer subsidies to companies that produce safe energy so that they can curb the destruction and overconsumption of natural resources as sources of energy (Bourdieu 1984). If the government can offer subsidies to companies producing safer goods that counter attack the use of demerit goods, the overconsumption experienced in such cases may be reduced (Bourdieu 1984). Minimum pricing is a measure that helps reduce overconsumption by allowing consumers to gain access to desired goods at minimum price (Evens 2012). Companies are safeguarded from getting loss through minimum pricing. They get motivated to produce safer goods that counter the overconsumption of one particular line of products (Evens 2012). For instance, in response to the fueled violence and the public health menace brought about with excessive drinking, the government introduced a minimum price unit for alcohol. The recommended price was made to be 45p. It was estimated that this could lead to a reduction in overconsumption of all product types up to 3.3% (Christian & Andreas 2012). It was also estimated that crime would go down by 5240 per year. Most importantly, there was an estimated reduction in alcohol related diseases up to 24600 with a reduction in death up to 714 per year (Christian & Andreas 2012). Overconsumption can also be reduced by regulation and rules. The relevant authorities can impose rules against the sale of certain products past a certain number of units. For instance, restriction is granted to the location and number of commercial outlets of alcoholic drinks sale (Christian & Andreas 2012). The distance between one outlet and another should be regulated. In another restrictive example, the types of commercial alcohol outlets are restricted such that there is a clear distinction between bars, nightclubs, and restaurants (Dan & Martin 1994: 372). Restrictions also necessitate commercial alcohol outlets to use a defined method of serving. Laws and restrictive measures allow the reduction of overconsumption of certain goods (Dan & Martin 1994: 372). Some nations put restriction to the daily time a person is supposed to consume alcohol. This measure builds up a mechanism to regulate consumption of certain products reducing chances of falling on the wrong arm of the government or law (Brown 2011). Consumers of demerit goods are considered irrational lacking sound judgment due to lack of proper information and education (Brown 2011). If the efforts to create more awareness to products and their side effects are enhanced, the consumption of harmful products will reduce (Gilleard 2009: 25). For instance, educating people on the harmful effects of smoking cigarettes may reduce the overconsumption problem underlying the product. Using persuasive advertising is also a powerful strategy to curbing overconsumption of goods (Gilleard 2009: 26). Conclusion Demerit goods are goods that form negative impact on consumers. Most consumers do not have sufficient information on these goods hence is termed as irrational decision makers. The free market fails due to overconsumption of demerit goods. If the consumers of demerit goods are educated, they may learn to be rational, and overconsumption of these goods will reduce. In a normal economy, there are several reasons why overconsumption at individual capacity is witnessed. Several factors make overconsumption occur more than it is good for the society. There are several ways through which overconsumption may be reduced. These methods are market based approach such as taxation, subsidies and minimum prices, regulations, placing laws, and offering information to consumers. Reference list Alcott, B. (2008) the sufficient strategy: would rich-world frugality lower environmental impact. Ecological economics, Elsevier, vol. 64(4), pages 770-786, Bourdieu, P. (1984) Distinction: a social critique of the judgement of taste, Routledge & Kegan Paul, London. Brown, R. (2011) World on the Edge: How to Prevent Environmental and Economic Collapse. Earth Policy Institute. Norton. Christian, S. & Andreas, C. (2012) sustainable consumption and consumer sovereignty. Papers on economic and evolution 2012-14, Max Planck Institute of Economics, Evolutionary Economics Group. Dan, V. & Martin, O. (1994) environmental issues in economics of consumer choice, White Horse Press, vol. 3(4), pages 369-380, Evens, S. (2012) real-time pricing when consumer have saving costs. Sciences Po publications 2012-11, Sciences Po Gilleard, C. (2009) The Third Age: field, habitus or identity?, in I.R. Jones, P. Higgs & D.J. Ekerdt (eds), Consumption and generational change: the rise of consumer lifestyles, Transaction Publishers, New Brunswick, N.J., pp. 23-36. Mason, M. (2004) The end of over-consumption: towards a lifestyle of moderation and self- restraint, European Environment: The Journal of European Environmental Policy, vol. 14, no. 1, pp. 52-3. Pape, J. (2011) Developing policies and instruments for sustainable household consumption: Irish experiences and futures, Journal of Consumer Policy, vol. 34, no. 1, pp. 25-42. Plott, Charles R, 1983. Externalities and corrective policies in experimental markets, Economic Journal, Royal Economic Society, vol. 93(369), Schafer, M. (2011) Leapfrogging to sustainable consumption? An explorative survey of consumption habits and orientations in southern Brazil, Journal of Consumer Policy, vol. 34, no. 1, pp. 175-196. Read More