A Level Economics AQA Practice Exam

Why are demerit goods often over-consumed?

1. They are heavily regulated by the government

2. They provide significant benefits to society

3. They are viewed as safe and desirable by consumers

4. They may have addictive qualities or peer pressure

The correct answer is: They may have addictive qualities or peer pressure

Demerit goods are often over-consumed because they may have addictive qualities or be heavily influenced by peer pressure. This addiction can lead individuals to consume these goods more than is socially optimal, despite the negative effects that may result from such consumption. For instance, substances like tobacco or alcohol can create a physical dependency, making it challenging for consumers to moderate their intake, even when they are aware of the potential harms. Similarly, peer pressure can significantly impact consumption patterns. Especially among younger demographics, the desire to fit in with social circles can drive individuals to consume demerit goods, despite knowing they may be detrimental to their health or well-being. This social dynamic can further perpetuate the cycle of over-consumption, leading to a sustained demand in sectors where these goods are prevalent. In contrast, demerit goods are not heavily regulated by governments which can sometimes fail to impose sufficient restrictions or taxes to dissuade over-consumption. Additionally, rather than providing significant societal benefits, the societal impacts of these goods are generally negative, which is why choices that suggest positive regulation or benefits do not accurately capture why demerit goods are over-consumed. Overall, the combination of addiction and social influences creates an environment where demerit goods are consumed in