What type of goods are considered harmful and are typically over-provided and over-consumed in the market?

Demerit goods are defined as goods that are considered harmful to individuals and society, which leads to their over-provision and over-consumption in the market. These goods typically create negative externalities—unintended adverse effects on third parties or society as a whole. Examples include tobacco, alcohol, and recreational drugs, which can lead to health issues, social problems, and increased healthcare costs.

The core reason why demerit goods are over-consumed is often linked to a lack of information or awareness about their potential harms. Additionally, individuals may prioritize immediate gratification over long-term health implications, leading to higher consumption levels than would be socially optimal.

This concept stands in contrast to other types of goods. For instance, positive externalities relate to benefits that spill over to third parties, sustainable goods are those designed to minimize environmental impact, and public goods are non-excludable and non-rivalrous, like street lighting or national defense. Each of these types addresses different market dynamics and societal needs, highlighting the unique issues associated with demerit goods.