Answer to Question #202545 in Macroeconomics for sana

Question

in a free market such drinks are very popular, its producers spend a lot of money on advertising, they are widely used in fast-food industry, and they cause some kind of addiction, that's why sugary drinks may be over consumed.

 Evaluate the view that imposing a tax is the most effective government policy for reducing the market failures arising from overconsumption of unhealthy food and drink?

Answer 1

A sugar tax will internalize negative externalities by shifting quantity demanded back to a quantity where the Social Marginal Cost (SMC)= Social Marginal Benefit (SMB), making the market socially efficient.