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Chapter 2

6.4 Merit goods

 Problem – goods with positive social benefits may not be consumed/available to
all – in particular, the poor may not be able to afford them

 Solution – state provision – e.g. healthcare, education

6.5 Demerit goods

 Problem – goods are produced that are considered unhealthy, degrading, or
otherwise socially undesirable.

 Solution – state regulation – e.g. gambling, junk food, underage drinking

6.6 Competition policy and fair trading regulations

 Problem – companies abuse market power and charge excessively high prices
to consumers.

 Solution – state regulation. Key areas include

– Mergers and acquisitions

– Restrictive trade practices – e.g. collusion over price fixing

– State-created regional monopolies – e.g. utilities often have regulator

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