merit and demerit goods
Most people, left alone, exercise too little, save too little for old age, and skip a vaccine they 'don't really need' — yet many of those same people, looking back, wish they'd done more. Cigarettes and sugary drinks tell the mirror story: tempting in the moment, regretted later. A merit good is something economists judge people tend to under-consume relative to what's genuinely good for them; a demerit good is something they tend to over-consume relative to their own real interests.
The technical hook is two-fold. First, these goods often carry externalities — an education benefits society, a vaccinated person protects others, a smoker harms bystanders — so the market gets the quantity wrong for that reason alone. But the more distinctive (and more contested) idea is that individuals may misjudge the private benefit or harm to themselves, because of poor information, present bias (over-weighting today over tomorrow), or addiction. On that view the market 'fails' not just on third parties but on the consumer's own behalf, which is why governments subsidize or mandate merit goods (schooling, vaccines, seatbelts) and tax or restrict demerit goods (tobacco, alcohol, gambling).
Merit and demerit goods are the bridge between economics and paternalism, and they are genuinely controversial. The concept requires someone — usually the state — to assert it knows a person's 'true' interest better than the person does, which clashes with the standard economic respect for individual preferences. Critics warn it can license meddling and moralizing dressed up as efficiency; defenders point to behavioural evidence that people really do make systematic mistakes. The honest framing is that the externality part is solid economics, while the 'we know better than you' part is a value judgement worth naming openly.
Governments make primary schooling compulsory and free (a merit good thought to be under-consumed) while taxing tobacco heavily and banning its sale to minors (a demerit good thought to be over-consumed) — both rest partly on the claim that individuals' own choices fall short of their real interests.
Goods judged under- or over-consumed relative to one's real interest.
The concept is partly paternalistic: it assumes someone knows your 'true' interest better than you do. Its externality side is solid economics; the 'we know better' side is a value judgement, not a neutral fact.