Controlling force in the government

Junior (College 3rd year) ・Business ・APA ・5 Sources

The ultimate controlling force over many factors for the wellbeing of the populace is the government. To protect its citizens' interests, the government can control some economic sectors. Without coercive measures like tariffs, taxes, and/or subsidies, all economic activity are anticipated to function smoothly in a free market. In an ideal world, all private businesses would seek to maximize their market returns, which would in turn help society in some way (Rios, 2013). However, there are instances where these players don't perform well because of positive or negative externalities. Government involvement is necessary in these situations to protect society from unfavorable market spillover. A negative externality is the cost taken care of by the tertiary player due to the actions of the primary and the second player. The negative effects of the actions of the primary and the second player causes a market failure.
A case example of government’s intervention in market failure is the sugar tax in the UK. The UK government’s intervention included the institution of tax on sugar and all products containing sugar (Armstrong, 2017). The tax is a welcome move for public health, but has large implications on the soft drink industry. Sugar has been attributed to lifestyle diseases like diabetes. The market failed to control this effect, and thereby endangered the lives of the population by creating an environment favorable for the perpetration of the lifestyle diseases (Armstrong, 2017). Realizing that legislative control would help avert the public health problem, the UK government drafted the tax policy on sugar and sugar products.
The tax is meant to reduce levels of childhood obesity, and the money accrued from these activities will be set aside for breakfast clubs in schools and sports activities in the same schools (Briggs, 2016). The tax is levied on the manufacturers. They will be required to pay about twenty-five cents for every litre of sugary drink having 5-10 grams of sugar for every hundred millilitres (Kottasova, 2017). Below is the supply-demand curve for Pepsi drink for a section of the UK market.
The demand was inversely proportional to the price of the products. With an increase in price, people find it expensive to partake the product. They would look for alternatives in the market. The increased prices are due to the decision by the company to pass down the sugar tax to the consumer. The supply may be fairly constant, but the demand is will reduce thereby shrinking the market size for the soft drinks industry.
The intervention has had a significant effect on the economic and social realms. It will create a shift in demand of sugar drinks. The manufacturers may want to pass down the cost of the levies to the consumer by increasing their prices. This would make the sugar products costlier, and people would surely search for alternatives. The shift in demand would surely reduce the market share for sugar products. With reduced demand, revenue generation by the manufacturers of these products will reduce. Low revenue collection will lead to job losses as the manufacturers would try to reduce costs (Qrunfleh, 2014). However, on the positive side, there would be a reduced level of childhood obesity (development of new cases of childhood obesity). People would opt for healthier options which would be cheaper. The above case scenario presents the potential effects of government intervention in market failures, especially those due to negative externalities.


Armstrong, A. (2017). Sugar Tax Will Harm Jobs and Economy. The Telegraph, 48.
Briggs, A. (2016). Sugar Tax Could Sweeten a Market Failure. Nature, 27-35.
Kottasova, I. (2017). Soda Wars: The UK's Tax on Sugary Drinks is Working. CNN, 37.
Qrunfleh, S. &. (2014). Supply Chain Information Systems Strategy: Impacts on Supply Chain Performance and Fir Performance. Internation Journal of Production Economics, 340-350.
Rios, M. C. (2013). Economics: Principles, problems, and policies. McGraw-Hill.

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