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The Pros And Cons Of Overconsumption

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The World Health Organization urged countries to impose a tax on sugary drinks in order to battle the growing obesity. Sugary drinks are an example of negative externality of consumption, because as the result of their consumption we have external cost in the form of suffering third party (tax-payers) who have to pay for the obesity treatments of sugary drink consumers. Sugary drinks are considered to be demerit goods, which are undesirable for consumers due to their harmful effects such as diabetes, obesity and tooth decay, but which are overconsumed by the market. Overconsumption of demerit good is the market failure. The reason for overconsumption is that the good has negative externality consumption, and because of that the market over-allocates resources for its production. Another reason for overconsumption is that the consumers are not aware of the harmful and negative effect of the good. It is debatable whether sugary drinks are price elastic or inelastic in demand. Price elasticity is measurement of change of responsiveness of quantity demand when price is changed. Sugary drinks have been problem among children and the poor lately as they said in the text so the increase in price has been particularly effective on those groups since the percentage of quantity they demand is more responsive then the percentage of price change.

Based on the graph, we can say that marginal private benefit curve doesn’t match social benefit curve. MPB curve represents

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