Government Intervention (Edexcel A Level Economics A)

Refer Extract

Evaluate the likely microeconomic and macroeconomic effects of imposing a tax on HFSS foods (25)

In 2015 a report by Public Health England recommended the imposition of a 20% tax on the sale of soft drinks that contain high levels of sugar.

Evaluate the likely microeconomic effects of such a tax (25)

Discuss the likely success of policies to reduce the consumption of single‑use plastic bags in cities such as Istanbul (12)

The UK Rail Industry

Figure 1: UK government subsidy to Northern, a train operating company in Northern England

Refer to Figure 1. Explain the likely effect of the change in subsidy levels between 2017 and 2018 on rail fares.

Include a supply and demand diagram in your answer.

With reference to Extract B, explain one reason for government intervention through regulation

Extract B

Free market approach

Are free markets incompatible with good health? If the solution to every problem involves banning advertising, raising prices and restricting availability, you might easily conclude that the free market is the disease and government regulation is the cure. From
this perspective, the providers of food, alcohol and tobacco are determined to push the most unhealthy products on the public at the lowest prices. Contrary to this viewpoint, the profit motive is not unhealthy. Businesses have an obvious incentive to keep their customers alive and customers have a strong incentive to seek out healthier options. Any company that can make a scientifically sound health claim gains a competitive advantage over its rivals. Health sells. In contrast, government regulation
can lead to negative health outcomes. Markets can correct themselves long before government failures are even acknowledged. Over a million Britons, almost all of whom are smokers or ex-smokers, use e-cigarettes, as a less hazardous product than cigarettes and yet e-cigarettes face increased regulations and in many countries they are banned. It is neither consistent nor ethical to prevent smokers from switching to much safer alternatives. Efforts to regulate e-cigarettes are a far greater threat to public health than the products themselves. We argue that the interests of consumers are nearly always better advanced by the provision of accurate information and free choice than by prohibitions and regulations. The government policy of small but steady tax rises on tobacco and ever-larger warning labels is becoming less effective and leads to unintended consequences.

(Source: adapted from http://www.iea.org.uk/blog/free-market-solutions-in-health-
should-be-allowed-to-flourish, Christopher Snowdon, 11th July 2013)