Demerit goods are primarily characterized by what attribute?

Demerit goods are typically defined by their potential to cause harm, either to the individual consuming them or to society as a whole. These goods are associated with negative externalities, such as health risks or social issues, that can arise from their use. Examples include tobacco, alcohol, and junk food, which can lead to adverse health outcomes and increased healthcare costs.

The reason this choice is correct lies in the essential nature of demerit goods—consumers may underestimate their harmful effects or overestimate their benefits, leading to overconsumption. As a result, governments often intervene through regulations, taxes, or public awareness campaigns to discourage their consumption in an effort to enhance overall societal welfare.

Other options do not align with the defining characteristic of demerit goods. While some services may be subsidized or publicly funded, these attributes do not inherently speak to the harmful nature of demerit goods. Similarly, essential services are typically viewed as having positive impacts on society, contrasting sharply with the negative implications associated with demerit goods.