Answer to Question #311433 in Microeconomics for Cakes

Question

explain why it is necessary to know what information failure means when classifying goods as merit or demerit goods

Answer 1

Information failure is a sort of market failure in which individuals or businesses are unable to make informed economic decisions due to a lack of information.

It is necessary to know what information failure means when classifying goods as merit or demerit goods because imperfect information about the long-term consequences of consuming a good may lead to over-provision of demerit goods and under-provision of merit goods.