Which policy action is commonly used to reduce the consumption of demerit goods?

Which policy action is commonly used to reduce the consumption of demerit goods?

• A. Providing subsidies
• B. Removing subsidies
• C. Providing coupons
• D. Imposing taxes or other deterrents

Answer: (D)

Demerit goods are those that are harmful to individuals or society, so governments try to curb their use by making them more expensive or harder to obtain. Imposing taxes or other deterrents is the most common tool because raising the price tends to reduce consumption, especially for goods that people would prefer to lower or avoid if the cost rises. Taxes can also raise revenue to fund health and social costs associated with the harm. Subsidies would do the opposite, encouraging more consumption. Coupons lower the price, which increases demand rather than reduces it. Removing subsidies can raise price and potentially reduce consumption, but it’s not the direct or most straightforward way governments typically discourage harmful use; taxes are the standard policy to deter demerit goods.

Demerit goods are those that are harmful to individuals or society, so governments try to curb their use by making them more expensive or harder to obtain. Imposing taxes or other deterrents is the most common tool because raising the price tends to reduce consumption, especially for goods that people would prefer to lower or avoid if the cost rises. Taxes can also raise revenue to fund health and social costs associated with the harm.

Subsidies would do the opposite, encouraging more consumption. Coupons lower the price, which increases demand rather than reduces it. Removing subsidies can raise price and potentially reduce consumption, but it’s not the direct or most straightforward way governments typically discourage harmful use; taxes are the standard policy to deter demerit goods.