Griffin9
Badges: 2
Rep:
?
#1
Report Thread starter 11 months ago
#1
explain how, in a free market, sugary drinks may be over consumed (15 marks)

evaluate the view that imposing tax is the most effective government policy for reducing the market failures arising from the over consumption of unhealthy food and drink. (25 marks)
0
reply
econplussal
Badges: 7
Rep:
?
#2
Report 11 months ago
#2
For the first question you could draw a negative externalities diagram and show the market equilibrium where MPB/MSB/D=MPC and then you could show how the socially optimum level is at where MPB/MSB/D=MSC. Draw out the price and quantity level at these two equilibriums. In a mixed economy we would expect the government to impose a tax or minimum price scheme etc to lower the quantity produced to the socially optimum level but as there is no government intervention in a free market economy, the market will not immediately try to lower the quantities produced especially if more is demanded therefore sugary drinks will keep being overconsumed.

You could argue that if demand keeps increasing, the price of sugary drinks will also increase and this may in turn start rationing those who cannot afford the higher prices so in the long run it may reduce the quantity of people consuming sugary drinks~ rationing function of the price mechanism (evaluative point)
0
reply
econplussal
Badges: 7
Rep:
?
#3
Report 11 months ago
#3
For the 25 marker you could draw the effects of a tax on the supply of sugary drinks - using a diagram a tax is going to shift supply left and so the price will increase and the quantity will fall which shows its good at limiting the consumption of sugary drinks.

Or you could talk about the PED of sugary drinks and how they are likely to be price inelastic and so the burden of tax will fall on the consumer more than the producer. So it will significantly limit the consumption of unhealthy drinks/food etc.

Perhaps as another point you could offer an alternative like a minimum price scheme and how that limits the quantity produced however you could evaluate by saying it causes excess supply which the government may have to buy up and dispose of thus incurring an opportunity cost
Last edited by econplussal; 11 months ago
0
reply
X

Quick Reply

Attached files
Write a reply...
Reply
new posts
Back
to top
Latest
My Feed

See more of what you like on
The Student Room

You can personalise what you see on TSR. Tell us a little about yourself to get started.

Personalise

Would you consider Adjustment if your grades were higher than you expected?

Yes, I'd look at higher ranking universities than my current choices (125)
42.96%
Yes, I'd look for a course or uni that is a better fit for me (45)
15.46%
No, I'd stick with my current uni choice (116)
39.86%
Something else (let us know in the thread below!) (5)
1.72%

Watched Threads

View All
Latest
My Feed