Answer to Question #118261 in Economics for michael

Question

With reference to two examples each, explain the difference between demerits goods and

mixed goods. [6 marks]

(b) Discuss whether government adoption of advertising campaign or taxes is more effective in

arriving at the correct price of demerit goods.

Answer 1

(a) Demerit goods are thought to be 'bad' for you. Examples are alcohol, cigarettes and various drugs. 

Mixed goods possess characteristics of both private and public goods. They can be either rival (the main thoroughfares in downtown during the peak time) or non-rival (usual highway between two cities).

(b) Government adoption of advertising campaign is more effective than taxes in arriving at the correct price of demerit goods, because taxes creates deadweight loss.