A levy is placed on drinks with high sugar content to reduce the external costs of excessive consumption. After its introduction, the average sugar content of affected drinks falls, but the total volume sold rises. Producers can avoid the levy by reformulating, and the levy takes a larger share of the income of low-income households. Which evaluation is best?
The lower average sugar content supports the levy, but revenue and administrative cost should carry most weight because they are measurable.
Reformulation is evidence of success, but the levy should be judged mainly by its burden on low-income households, since price responses are less relevant.
The increase in volume weakens the case for the levy, because a successful policy should reduce purchases even if reformulation occurs.
Reformulation may reduce the external cost even while volume rises; judge the policy by total sugar consumed and the heavier burden on low-income households.
127 exam-style questions on OCR GCSE Economics 3.8 Limitations of markets, covering 3.8.1 Positive and negative externalities, 3.8.2 Policies to correct externalities, 3.8.3 Impact of externality policies, and 3.8.4 Costs and benefits of externality policies. Each one has a worked solution and a mark scheme showing where the marks go.