In this essay, I will discuss the impacts that the restriction of advertising made by the government of Nosugarland will have on the demand and prices of sugar-rich soft drinks. I will expand on the effects that this policy will have on demand and prices both in the short and long run.
The government of Nosugarland has used this policy on sugar-rich drinks because the government has realised that these sugar-rich drinks are a demerit good and bring about a negative externality in the economy. A demerit good is a good which when consumed does not bring about positive effects and because of the market failure of imperfect information, the demerit good is usually over consumed. It brings about a negative externality whereby the social external cost is greater than the social private cost.
EFFECT ON SUGAR-RICH SOFT DRINKS
In the short run, this restrictive policy will not bring about a change in demand for sugar-rich soft drinks because implementation takes a long period, as the information has to fully circulate around the economy before any change will be seen.
In the long run, however, if the government decides to restrict advertising of sugar-rich soft drinks, this could bring about a fall in the demand for such drinks because people are less aware of their availability in the market. Consumption will thereby fall and due to consumption being a major component of demand, a fall in consumption will lead to a greater fall in the demand for sugar-rich soft drinks; as shown in my graph (1) below. This concept is known as the multiplier effect.
Restriction of advertising of sugar-rich soft drinks will cause demand to fall and due to the fall in the quantity demanded by consumers, the demand curve will shift to the left;...
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...diseases. Labelling these sugar-rich drinks to show a detailed list of all ingredients and their quantities will help to raise awareness and encourage consumers to consume less could do this.
Another policy the government could use is through the use of subsidies on the healthier soft drinks. A subsidy will benefit the supplier as it will cause a fall in the cost of production and so will give suppliers the incentive to produce more. This will thereby cause the supply curve to shift out to the right, as is shown in graph (3); and so the price of healthier drinks will fall which will bring about an incentive for consumers to demand more for healthier drinks.
However, it could be argued that the demand for healthier drinks is inelastic and so a fall in the price may only bring about a small increase in the demand for healthy drinks and so will not cause a huge impact.
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