Syllabus: AQA - AS and A Level Economics
Module: 3.1.5 The Market Mechanism Market Failure and Government Intervention in Markets
Lesson: 3.1.5.5 Merit and Demerit Goods

Introduction

This topic—Merit and Demerit Goods (3.1.5.5)—sits within the AQA A Level Economics syllabus section on The Market Mechanism, Market Failure and Government Intervention. It’s core to understanding why and when markets misallocate resources, and what governments can or should do about it.

Students are expected to move beyond diagrams and definitions. They need to think critically about value judgements, imperfect information, and whether governments actually improve market outcomes. This topic supports wider syllabus goals around market failure, price mechanisms, and externalities—core to Paper 1 assessment.

Key Concepts

According to AQA’s official specification, students must understand and apply the following:

• Merit goods: Goods that are under-consumed in a free market, often due to individuals underestimating their private or social benefits (e.g. education, vaccinations).

• Demerit goods: Goods that are over-consumed, typically because consumers undervalue the private or social costs (e.g. tobacco, fast food).

• Imperfect information: A key reason for market failure—consumers may lack full understanding of the benefits or harms.

• Government intervention: Justifications include correcting under/over-consumption using subsidies, taxes, regulations, or direct provision.

• Distinction from externalities: While related, this topic focuses on information failure and consumption rather than spillover effects alone.

Students should be able to discuss normative assumptions (what society “should” consume), apply these concepts to real-world examples, and evaluate government interventions.

Real-World Relevance

This topic is deeply connected to live policy debates and everyday behaviours.

• Sugary drinks tax (UK Soft Drinks Industry Levy): A classic case of demerit good regulation. Introduced in 2018, it incentivised reformulation and reduced sugar consumption without banning products.

• Flu vaccinations during COVID-19: Highlighted the importance of merit goods and how governments encourage uptake through free provision, public information campaigns, and mandates for certain sectors.

• Vaping products: Often debated as a borderline merit/demerit good depending on the framing—reduction of smoking harm vs. uptake among young people.

Embedding these examples into lessons helps students see economics in action—not just theory.

How It’s Assessed

AQA typically assesses this topic through data response and essay-style questions on Paper 1. Common assessment formats include:

• Short explanations: e.g. “Define a merit good and explain why it may be under-consumed.”

• Diagram analysis: e.g. shifts in demand caused by information failure or policy.

• Evaluation essays: e.g. “To what extent should governments intervene in markets for demerit goods such as alcohol?”

• Data-linked evaluation: often contextualised in current policy, requiring students to interpret statistics and apply theory.

Command words to note:

• Explain (demonstrate understanding),

• Analyse (chains of reasoning),

• Evaluate (weigh arguments and reach judgment).

Students should be prepared to construct arguments with value judgments, use evidence, and apply models critically.

Enterprise Skills Integration

Understanding merit and demerit goods develops core enterprise capabilities:

• Decision-making under uncertainty: students grapple with imperfect information scenarios.

• Problem-solving: they evaluate trade-offs in government policy—cost vs. effectiveness.

• Critical thinking: assessing whether market or government solutions are more efficient.

• Ethical reasoning: particularly when discussing paternalism and consumer freedom.

Enterprise Skills simulations can reinforce this by dropping students into policy advisory roles—deciding budgets, advising ministers, or reacting to market behaviours.

Careers Links

This topic connects closely with the Gatsby Benchmarks, especially:

• Benchmark 4 – Linking curriculum learning to careers:
  Students apply economics to policy, public health, education, and regulation.

• Benchmark 5 & 6 – Encounters with employers and workplaces:
  Guest speakers from health policy, local government or charities can illustrate how data informs decisions about merit/demerit goods.

Career pathways where this knowledge is valuable:

• Public sector economists

• Health policy analysts

• Behavioural scientists

• Regulatory advisors

• Social researchers

These roles require the same skills students develop here: evaluating decisions with incomplete information and considering real-world consequences.

Teaching Notes

Common pitfalls:

• Confusing merit/demerit goods with positive/negative externalities.

• Assuming all merit goods are free or all demerit goods are taxed.

• Over-relying on normative language without economic justification.

Suggested activities:

• Mini simulation: Let students act as government advisors, choosing between subsidies, taxes, bans, or education campaigns for a chosen good.

• Case study debate: Divide the class—should vaping be taxed as a demerit good or subsidised as a smoking cessation tool?

• Data interpretation tasks: Use NHS, ONS, or OECD data to compare consumption patterns before and after policy changes.

Scaffolding tips:

• Use real media articles to anchor abstract theory.

• Ask students to design public information campaigns (develops application and creativity).

• Encourage students to draw supply/demand diagrams to model interventions.

Extension opportunities:

• Explore global case studies (e.g. sugar tax in Mexico).

• Link to behavioural economics topics: bounded rationality, heuristics, and nudges.

Tools that work:
The Skills Hub from Enterprise Skills includes plug-and-play resources aligned to AQA that tackle exactly this topic, complete with scaffolded activities and assessment practice—built for real classrooms, no extra workload.