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Saturday, 14 April 2012

Government Policies to Reduce Market Failure

If you've watched the news recently, you guys should know that the government are considering changing the packaging on cigarettes to discourage new smokers. Use this as a case study in your exam to demonstrate government policy to reduce market failure caused by demerit goods (See notes on Negative Externality and Market Failure. These notes specifically apply to negative externalities, but it is relevant because the consumption of demerit goods causes negative externalities, e.g. second hand smoke).

The new plain branding is being considered to deter youths from starting to smoke, but critics say that the branding will make no difference to those who are already in the habit of smoking. What is your view? Good idea? Tell the examiner!