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A bad is a physical object that lowers a consumer's level of happiness, or stated alternately, a bad is an object whose consumption or presence lowers the utility of the consumer.
With normal goods, a two-party transaction results in the exchange of money for some object, e.g. money is exchanged for a car. With a bad, however, both money and the object in question go the same direction, e.g. a household loses money and the garbage. The waste collector is being compensated to take the object from the consumer. In this way, garbage has a negative price; the waste collector is receiving both garbage and money, and thus is paying a negative amount for the garbage.
Goodness and badness are an inherently subjective declaration, however. As an example: two diners at a restaurant discover that the "secret ingredient" in the house specialty is peanuts. One of the diners is a peanut-lover, and the other is allergic to peanuts. In this case, peanuts are, in the same time and in the same place, both a good and a bad in economic terms.
Additionally, a good consumed by the same individual can turn into a bad over time, and vice versa; the nicotine from cigarettes may give a smoker a feeling of relieved anxiety and reduced stress. Continuing, long-term consumption of cigarettes, however, may have serious adverse effects on a smoker's health, thus turning the utility of cigarettes into the negative. On the other hand, some forms of medical treatment or side effects of medication may seem rather unpleasant to a patient at the time of treatment, but will greatly improve their health and well-being in the long run.
- Varian, Hal R. (2006), Intermediate Microeconomics (London: W.W. Norton & Company)
- Peter Smith (2012), "Bad Economics" (Melbourne: Connor Court Publishing)