Evaluate the impact of a tax on sugar drinks. (This is probably more A-level than GCSE)

Analysis: First define tax and explain that this could be ad valorem (percentage of price) or per unit (set tax per unit). Explain why the government would want to do this - overconsumption can cause obesity, this makes it a demerit good (define), this is a strain on the NHS which causes a negative externality (define), this is an example of market failure (define). Show how a tax could both reduce consumption (internalise the externality) and generate revenue for the government (to spend on merit or public goods). Show this with a diagram. This could correct market failure. Evaluation: Perhaps a tax on sugar in general would be more impactful. Sugar drinks are probably inelastic goods as sugar is addictive (explain what this means), this reduces the impact on consumption (maybe show on a diagram with a more elastic demand curve) meaning there may not be as much of a correction of the market failure. The government may not actually spend this tax revenue on merit or public goods.