Assess the case for and against government intervention in the markets for food and drink to encourage a healthy diet.

The government may perceive junk food to be a demerit good because the market tends to over-provide because of a higher private optimal level of output that a socially optimal level of output. This is due to the negative externalities junk food creates. An externality is the effect the production or consumption of a good or service has on a third party.

The government would be inclined to intervene in the production and consumption of junk food because it has negative externalities (demerit good). The nature of a demerit good means that it tends to be over-produced or consumed which means there is a misallocation of resources in the market because the privately optimal level of output is higher that the socially optimal level of output. If the government were to impose tax on junk food to the consumers, according to the law of demand, demand would decrease because as the price of the good increases, its output decreases. In decreasing the demand and consumption of junk food the size of the negative externality is reduced, for example people become more and more healthy (in the long run) and so are less dependent on benefits, because they are able to work, as well as less pressure on the NHS. The government could also promote healthy eating by subsidising fruit and vegetable producers or by funding research and development into new ways of growing produce in modified climates. This would shift the supply curve outwards which not only reduces the price of the good but also increases the output.
However, this may not work because if the food that has been taxed is an essential good means it would have an inelastic demand – the demand doesn’t change much following a change in price.

To conclude, the impact of government intervention may not