Also; for the 25 marker in Essay 3, do you need to talk about more than one policy?
If you were to:
- Acknowledge sugary drinks as a demerit good, resulting from imperfect information, which is information failure
- Use a diagram to show the effects of this demerit good in the free market (above the socially optimal level of output, where MSB=MSC)
- Define a tax, and refer to how it leftward shifts the S curve
- Use a diagram to show just that, whilst also showing the total tax paid, the total tax paid by the consumer, the total tax paid by the producer
- The advantages of tax (cost of negative externalities is internalised in the price of the good, so demand is reduced; revenue can be used to offset the negative externalities)
- The disadvantages of tax (increases cost of production reducing international competitiveness which may cause firms to relocate, doesn't work if demand is price inelastic, just because externalities can be offset does not mean they will, difficult to put monetary value on cost of the negative externalities)
- Mentioning how it depends on the price elasticity of demand, and how sugary drinks are more price elastic admittedly; but it does not mean they cannot switch to a cheaper sugary drink
How would this fare?
Cheers