Market Failure

Market Failure

1. MSC not = MSB

   • not allocatively efficient
   • welfare loss

2. Sources

   • imperfect information
   • externalities
     • "-ve 8,087 weight loss stomach operations 2010/11" - Evidence A
   • Monopoly Power
   • immobility

3. Private Goods

   • Merit
     • underconsumption
     • +ve externalities
     • Healthy Meals
       • "Half of the 1.2m children entitled to free school meals do not take them up" - Evidence F
   • Public
     • Free Rider
     • Non excludability
     • non rivalry
   • Demerit
     • overconsumption
     • -ve externalities
     • sports drinks
       • "The levels...in which people are consuming these are worrying" - Evidence C

4. Responses

   • Legislation
     • Traffic Light labeling of Foods Banning of trans fats 
   • Regulation
     • Ofsted - monitor and report on standards "take it in turns to have nutritious lunches". - Evidence D
     • Ofsted found a "third of schools still failing to provide healthy meals" - Evidence D
     • Mandatory standards - "average school lunch must contain at least one portion of veg or salad and one of fruit." - Evidence D
     • Mandatory standards cont'd - "Fat, sugar and salt are restrcited and each meal shoud contain minimum levels of nutrients and vitamins" - Evidence D
   • Taxation
     • Sports and body building drinks to lose their "zero rating" - Evidence E, link to evidence C
     • "Consumption of these isotonic drinks without accompanying exercise is linked to weight gain." - Evidence C
     • "The proposed VAT on the pasty could mean a 15-20% reduction in sales [leading] to job losses and lower profitability" - Evidence E
     • Fat tax - Denmark on foods high in saturated fat
   • subsidy
     • Money towards buying fresh food for new mums - see Health Start Scheme
   • Public sector
     • Healthy Schools Meals - cost £367, withdrawal of these would "negatively affect economic welfare"
     • "healthy food improves behaviour and grades" - Evidence F

5. Pre-release issues

   • Measuring externalties
     • -ve Cost to NHS of obesity linked to consumption of fatty and sugary foods, also sports/fizzy drinks
     • +ve Economic mobility linked to better behaviour grades
   • Government intervention
     • "nanny state"
       • Should individuals be more responsible.  Are they really poorly informed about choices or making poor choices?
     • health awareness
       • Change 4 Life - promoting healthy lifestlyes
       • Anti campaigns - would this be too emotive? 
       • Costly are they effective? 
     • Equity
       • Tax on food regressive, as flat rate indirect tax 
       • PED of food inelastic therefore incidence is borne by the consumer, so inflationary as well
     • Trade off
       • Given the current austerity measures any funding will redirect funds from elsewhere, can the opportunity cost be justified?
       • Already scrapped a "planned extension of free school meals" - Evidence D