Asses the effectiveness of different government policies that could be introduced to
reduce the consumption of sugary drinks(use examples from the UK economy) (25marks)
(In) The economic policy of governments covers the systems for setting levels of taxation,
government budgets, the money supply and interest rates as well as the labour market,
national ownership, and many other areas of government interventions into the economy.
Market failure happens when the price mechanism fails to allocate scarce resources
efficiently or when the operation of market forces lead to a net social welfare loss.
The major market failure associated with the consumption of sugar, such as in soft drinks,
is overconsumption due to the presence of both negative externalities and imperfect
information.
An example of such externality would be the strain on healthcare services from obesity-
related diseases, such as diabetes, as well as reductions in labour productivity and rising
sickness absenteeism for firms.’ In 2014, the McKinsey Global Institute stated that obesity
costs the global economy an annual £1.3 trillion, and £47 billion in the UK alone.’
(An) ’George Osborne is following the example of other countries that have used indirect
taxation to manage obesity issues. One example is Mexico, which in January 2014
introduced national taxes on sugary drinks (10% tax on every litre of sugar-sweetened
drink). Mexico the sugar tax reduced sales of fizzy drinks by 12% in the first year.
The UK government is using a specific tax to target the primary source of sugar for
teenagers: soft drinks. The tax is imposed on companies, based on the volume of high-
sugar drinks (excluding fruit and milk-based drinks) they produce or import. There are two
bands:
A lower band for drinks with a sugar content of above 5 g/ml, such as Fanta and Sprite,
which will add about 6p to the price of a standard 330 ml can.
An upper band for drinks with a sugar content of above 8 g/ml, such as Pepsi and Coca-
Cola, which will add about 8p to the price of a standard 330 ml can.’
If tax is imposed the cost of production will increase and therefore the producers will have
less incentive to produce these drinks.This will reduce supply from S to S+tax.This will
have the effect of increasing the price of sugary drinks from P1 to P2.
The consumers are likely to pass the cost of increasing the cost of production onto
consumers by increasing the price of their product.This will decrease the consumption of
sugary drunks as consumers will have less disposable income to spend on sugary drinks
and therefore demand falls.
(Ev) However,even if the consumers do not pass this cost onto the consumers there will
still be a reduction in sugar consumption.T...
