Sugary Beverages and Junk Foods are Causing Obesity in Mexico

According to Agricultural Organization and UN Food, Mexico’s adult obesity rates are above that of the United States, with an obesity rate of 32.8% compared to the 31.8%. Junk food and sugary drinks have caused these rate to rise, which makes them negative externalities of consumption, which the private benefits to consumers of a good are greater than the social benefits of its consumption, in other words the good creates spillover costs on a third party. A tax, payment made by an individual or a firm to the government, has been imposed by the Mexican government to eliminate such negative externalities. The tax is expected to decrease demand for the good. The Cross price elasticity, the measure of the responsiveness of consumers of one good to the change in prices of another good , of fast food goods and healthier good gives us insight as to whether decreased obesity rates can be achieved.

Sugary beverages and junk foods are considered in this article as negative externalities of consumption, creating externalities such as increased public healthcare, which rollovers into the costs of the government. The issue faced is obesity and so the costs of consuming the good creates an issue of increased intake of fat, which creates other long term problems. In the diagram above we witness Marginal social benefit is less than the marginal private benefit. This shows that sugary beverages and fast foods are being over consumed relative to the social optimum. At the equilibrium of Qe the social benefits of consumption are less than the marginal private benefits and social costs which shows that society is benefiting less than the actual consumers of the good. Society would benefit where MSB = MSC, at this point we have eliminated the e...

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...ast food goods higher than healthy foods, we should expect an increase in the demand of healthier foods, which is a positive externality of production. This will lower the obesity rates in Mexico. In the case where one might want to argue against the imposition of a tax one could argue that this policy could hurt those less fortunate. Fast food goods are considered cheap goods and so the poor tend to purchase these good as opposed to expensive healthy goods. The corrective tax makes these goods a lot more expensive to them, therefore they struggle more so than before in regards to purchasing food. The producers of such goods also face losses due to their decreased surpluses. Producers not being able to make much profit are then forced to decrease output, which takes initiative when industries lay-off works. An increase in unemployment rates doesn’t benefit society.