De-merit goods are those goods or services that create negative externalities when the product is consumed. This reduces the social marginal benefit of consumption and also leads to potential market failure through over-consumption.

The government normally chooses to tax those products that generate negative consumption externalities e.g.:

· Cigarettes .

· Alcohol.

Or it may choose some form of regulation as an alternative strategy, e.g.:

· Pollution.

· Noise.

Finally it may choose to ban the good or service all together, e.g.:

· Drugs .

· Prostitution.