Question

According to medical studies, the world’s intake of sugary drinks has led to an increase in health issues, including heart disease and diabetes. This has led to negative externalities for the world’s population. Countries, including Great Britain and Finland, are dealing with the externality by establishing a sugar tax.

In your opinion, do sugar drinks cause negative externalities? What is a negative externality? Ad do you believe the tax would correct it?

Your answer must be a minimum of 5 sentences. Your answer should include economic terminology from unit 2. Be sure the terminology is used correctly. Support your answer.

Answer 1

When production or consumption imposes an external cost on the third party who is outside of transaction is called the negative externality. If one parent is diabetic patient due to over-consumption of sugary drinks, it may affect their children in future because diabetes is an inherited disease. It also increases the crowding in hospitals, decrease the availability of doctors which affect other people. So the social cost of sugar intake is more than private cost. Producers produce a more sugary drink that what society need. Sugar tax on production raises the private cost which may help to reduce the production of sugary drinks. And after-tax consumption will also be costly.