The government of UK Imposed a tax on sugary drinks in order to Discourage the companies to reduce the amount of sugar they use in the drinks, reduce sugar consumption in the form of sugary drinks and subsidize sports in schools so that the people, especially children could be protected to get obese. The consumption of sugary drinks in the UK is a negative externality of consumption, which is defined as the consumption of any good which creates a cost for the third parties. In this case, Over-utilization of sugary drinks in the UK develops lots of health issues, such as diabetes, teeth decay, obesity etc. which impose a cost on the society. Sugary drinks are considered as demerit good. The goods that are not good for the individual and the
…show more content…
Indirect tax is an expense charged from a person who consumes the goods/services and is indirectly paid to the government. The diagram below shows how imposing indirect tax on sugary drinks can reduce their consumption.
The indirect tax on sugary drinks shifts MSC curve upward in MSC+ Tax. This will decrease the utilization to the socially efficient level of output Q*, however; the price to the consumer will increase to P2. The government will get the revenue which is represented in the black shaded rectangular region . This revenue pays the cost of negative externalities caused by the utilization of sugary drinks. According to the article, the UK government plan to use the revenue to subsidize the sports in schools.
Taxation seems to be a good way to eliminate negative externalities caused by the usage of sugary drinks yet, there are numerous issues connected with imposing a tax.
The term sugary drink refers to a large group of drink, so unlike the article suggests, the demand for sugary drinks are inelastic. If the demand is inelastic then taxes will not affect on the quantity demanded. The quantity demanded will not reduce to socially efficient level, but the UK's government revenue will be raised. As a result, the government will not achieve their actual purpose of taxation- decrease …show more content…
Raising awareness among people through education and by advertising could also be a good solution. This will shift the MPB curve to the left, hence reduction the gap between the socially optimum level of consumption Q* and Q1. By considering all the arguments, the imposing of tax on sugary drinks in the UK could be great if other ways are also applied to reduce consumption. Subsidizing supports is a great decision, it will produce positive
Indirect tax is an expense charged from a person who consumes the goods/services and is indirectly paid to the government. The diagram below shows how imposing indirect tax on sugary drinks can reduce their consumption.
The indirect tax on sugary drinks shifts MSC curve upward in MSC+ Tax. This will decrease the utilization to the socially efficient level of output Q*, however; the price to the consumer will increase to P2. The government will get the revenue which is represented in the black shaded rectangular region . This revenue pays the cost of negative externalities caused by the utilization of sugary drinks. According to the article, the UK government plan to use the revenue to subsidize the sports in schools.
Taxation seems to be a good way to eliminate negative externalities caused by the usage of sugary drinks yet, there are numerous issues connected with imposing a tax.
The term sugary drink refers to a large group of drink, so unlike the article suggests, the demand for sugary drinks are inelastic. If the demand is inelastic then taxes will not affect on the quantity demanded. The quantity demanded will not reduce to socially efficient level, but the UK's government revenue will be raised. As a result, the government will not achieve their actual purpose of taxation- decrease …show more content…
Raising awareness among people through education and by advertising could also be a good solution. This will shift the MPB curve to the left, hence reduction the gap between the socially optimum level of consumption Q* and Q1. By considering all the arguments, the imposing of tax on sugary drinks in the UK could be great if other ways are also applied to reduce consumption. Subsidizing supports is a great decision, it will produce positive