7b) A demerit good is a product or a service that goes against common interest of a population and is related to promoting negative externalities. Examples of demerit goods are alcohol, fast food and cigarettes. All of these are goods that mostly cause problems in health and as a result they are causing a negative externality of high health costs to the NHS. These costs need to be covered by taxation and other sanctions which ultimately aim to reduce the consumption of demerit goods.
T.V can be argued to fall in the same category as smoking and drinking seeing as television poses great health issues on the individual and mainly children. According to Evidence I, television is seen to correlate with poor diet, poor health and obesity. This is for reasons such as television replacing exercise activity in the lifestyle of people. The finger can also be pointed at advertisement of fast-food and other products that promote inactivity such as games consoles; all of which are mainly targeted at kids. All these factors create huge problems/externalities which are estimated to cost the NHS £6.3bn according to Evidence A. A way the government can reduce the negative externality is through taxation imposed to equal the negative externality created (Pigouvian Tax). The disadvantage of such a strategy is that revenue raised from taxation all goes into one central pot which is then distributed to paying for many public services, not only the initial intended target (NHS). However, the psychological impact of taxation can be used as a disincentive to deter people from watching too much television. A ‘fat tax’ was suggested to be levied on the obese individual (Germany), in order prevent the negative externality, or on the product itself such as fast food (UK). Taxing the producers of the externality may seem as the smarter solution however the fast food firms will only pass on the costs to the consumer which goes against the efforts of the Competition Commission. Even though...
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