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†¦show more content†¦A tax on these goods decreases the supply to S+tax, which drives up the price of the good. Those who consume these goods now witness increased prices at Pso. Due to the law of demand its expected to see a lower quan tity of these goods consumed. Fast food goods, although have a steep demand curve meaning demand is very price inelastic, an increases in prices for the good won’t receive much of a response but if the government is to impose a tax such that it greatly increases the price of fast foods to gap that of healthier food, then we can begin to see some response from consumers. The equilibrium quantity, therefore falls closer to the social optimum (Qso). However, we witness decreased consumer surplus from A+B+C+D to A and decreased producer surplus from E+G+F to B. The corrective tax, imposed on fast food and sugary beverages has in fact eliminated the externalities, which corrects the overallocation of resources. In the case where the tax imposed had made the prices for fast foods greater than that of healthier food then these goods would have a positive cross price elasticity. 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