To reduce obesity, a government introduces a high tax on sugar-sweetened beverages. Consequently, consumers substitute these drinks with cheaper, untaxed beverages containing synthetic sweeteners that are later found to have worse long-term health risks.
This outcome is a direct illustration of government failure arising from:
regulatory capture by synthetic chemical manufacturers.
unintended consequences of a policy intervention.
information gaps leading to the underprovision of a merit good.
the free-rider problem in the market for healthcare services.
378 exam-style questions on AQA A Level Economics 1.8 The market mechanism, market failure and government intervention in markets, covering 1.8.1 How markets and prices allocate resources, 1.8.2 The meaning of market failure, 1.8.3 Public goods, private goods and quasi-public goods, 1.8.4 Positive and negative externalities in consumption and production, 1.8.5 Merit and demerit goods, 1.8.6 Market imperfections, 1.8.7 Competition policy (A-level only), 1.8.8 Public ownership, privatisation, regulation and deregulation of markets (A-level only), 1.8.9 Government intervention in markets, and 1.8.10 Government failure. Each one has a worked solution and a mark scheme showing where the marks go.