Obesity: a market failures problem
Introduction
"Economists consider that the elections made by people are rational" Argulle Parkin (2018, p.9) When it refers to the characteristics of economic thought, this assumption, however it is hindered by different market failures.
In this essay, in section one: Introduction will be analyzed from the economic perspective the costs of overpreed and obesity (hereinafter Syo) in Mexico at the individual and collective level as well as sitting what failures in the market cause obesity;The second section will explain how the government can intervene to correct the proposed failures;Finally, in the third section conclusions will be offered.
Introduction
The problem of SYO in Mexico caused the public treasury a wear of 223,593 million pesos in 2014, this is 1.3% of the GDP of that year (Ministry of Health, 2015, P.18-22). In addition to direct economic costs, the SYO at the individual level is a potential trigger for other unfavorable health conditions such as (Jensen MD, 2016):
- High blood glucose levels.
- Arterial hypertension.
- High concentration of triglycerides and cholesterol.
- Bone and joint problems how osteoarthritis.
- Sleep apnea.
- Cancer.
- Bile calculations and liver problems.
In addition to sedentary lifestyle, the inadequate diet is one of the causes of the SYO in general, the average Mexican follows the following pattern:
Cereals, as well as red meats are consumed in normal ranges;Fruits, vegetables, legumes and simple water are consumed in deficit, contrasting with added sugars, processed meats, sugary drinks and food with high energy and low nutritional density (Batis, Sánchez, García Chávez, Rodríguez, & Ramírez, 2018).
Once the previous points have been reviewed, it will have to be asked, is the SYO caused by individual decisions?, In this essay it is argued that it is not entirely correct to affirm that yes, since there are market failures that affect consumer decisions. To mitigate the SYO, the model proposed by Gutiérrez Delgado et will be followed.To the. (2018) about concurrent failures that cause overweight and obesity, namely:
- Imperfect information: consumers do not know the consequences of their consumption habits.
- Imperfect rationality: there is an asymmetry of information, the producer does not explicit what the consumer is receiving, therefore does not measure the damage that causes to consume or not consume certain products.
A high diet in carbohydrates, supersaturated fat, sugar and fast food, as well as irregular patterns in consumption I.and. skip breakfast, increase the possibility of overweight and obesity (t.H. Chan School of Public Health, 2020).
The actors involved in creating these market failures that will be analyzed in this essay are:
- Multiplatform ads of food products that cause SYO.
- Product labeling.
- Product prices.
- Ease of access to products.
It can be noted that there are external factors that detonate that SYO is common in Mexican society, that is, it is not necessarily a personal decision to suffer this condition.
Policy design
In this section, measures will be proposed to achieve, first a greater collection of taxes that compensate for the losses that will be created by limiting consumption to the products that cause SYO;and second, discouraging consumption by leveling information asymmetry, as well as that the costs of medical services associated with SYO are gradually assumed by users and not by the public sector.
Two products will be selected that causes SYO, but with different economic properties: sugary drinks and chocolate.
Sugary drinks.
Sugary drinks in Mexico have a demand price elasticity.06 to 1.16, that is, while the price increases by A%, its consumption will decrease between 6-16%to (Colchero, Salgado, Unar-Munguia, Hernández-ávila, & Rivera-Dommarco, 2015). Tax with a consumer tax will generate a decrease in its consumption.
In 2016, total soda sales in Mexico were 18824 million liters (KPMG, 2017), if for example with a 15% tax sales would be reduced in a range of 18654.59 to 18372.224 million liters.
Once the tax is serious, the market balance will not be reached, the price assumed by the buyers increases, the price they receive in the form of income the sellers decreases in an amount that. This means that buyers demand less goods and sellers by producing generating an unrecoverable loss of efficiency. The difference between the price paid and received are tax revenues.
A strategy that can give more sharp results in both short and long term is to establish a production quota on this good, limiting the amount that would be legal, however it is not the strategy recommended by its elastic characteristic, it is preferable to obtain tax revenues thatDo not get them, yes .
Sugary drinks are final goods, which for their production consume intermediate goods with inelastic characteristics and.and. plastic or stainless steel;If intermediate goods are also taxed, the cost of producing each unit of sugary drinks is increased;creating a movement on the demand curve to the left, increasing the costs assumed by the consumer and decreasing the quantity demanded.
If both measures are combined, the quantity of sugary drinks will be reduced, this strategy can be extended to any elastic good.
Chocolate.
It was discussed in the previous section that sugary drinks are an elastic good, so the strategy that must be followed is to seek to increase the price, taxing the good in itself and the intermediate goods that are required to produce the drinks.
It is assumed that this strategy is effective since consumers resent variations in the price, but what happens when it is not so? To explain the strategy with inelastic goods, chocolate will be used, which has an elasticity between 0.06 and 0.34 (Andras, 2017).
It does not matter that the price of chocolate is increased, it will continue to be consumed, so the strategy to reduce its consumption will be to establish production quotas in addition to a maximum price that restricts the producer’s profits.
Production fees will limit chocolate supply to the Mexican population, creating a byproduction, also combining this measure with a maximum price lower than the equilibrium price, not only the supply is limited (there may be producers that produce until the production fee offering them offering themat a lower price);but production is discouraged in legal ranges.
These measures believe that with the new price more demand, however there will be a shortage of the product, either because the good does not occur because the amount produced is not legal, either because the producers are not encouraged to produce an amount X becauseIt does not generate benefits.
Subsidies for substitute goods
A substitute good is one that can be used instead of another, since it offers the same usefulness for the same purpose, so, if there are no personal preferences of one good about another, the only determinant of the choice is the price is the price.
Then, following the previous logic, in order to reduce the demand for the foods that cause SYO, whether elastic, a subsidy will be offered to healthy substitute goods, to illustrate it will be used simple water for the soda and carob tree for coffee.
Product labeling
In the beginning it was pointed out that one of the causes of the SYO is the asymmetry of information between the producer and consumer, since the first may information that the law does not require to show, it can be inferred that it will not make explicit, for example, that asoda per 100g of product 11 are sugar.
In order to reduce the asymmetry of information, based on article 115, section VII of the General Health Law indicated to the letter (Congress of the Union, 2019 (1984)):
[It is a position of the Ministry of Health] Establish the nutritional needs that must meet the basic food pictures avoiding the high content of sugars, saturated fats, trans fats and sodium. In the case of industrialized wheat and corn flours, the mandatory fortification of these will be required, indicating the nutrients and amounts that must be included.
It is proposed to make the content of sugar, fat and sodium explicit in the advertising of the products that are considered potential causes of SYO, in addition to the measure already adopted by the Congress of the Union to modify the labeling of the products (Senate of the Republic, 2019).
If not only the contents make explicit, but the effects of the consumption of the products that cause SYO, the information asymmetry would be reduced, leaving the consumer to make an informed decision to buy or not such products.
References
- Andras, t. (July 2017). How Low Is The Price Elasticity in the Global Cocoa Market? Globalfood Discussion Papers, no. 102. Goettingen, Germany: University of Goettingen.
- Batis, c., Sánchez, t., García Chávez, C. G., Rodríguez, s., & Ramírez, I. (2018). Diet in Mexico and health effects. In i. Yo. Public, government intervention to correct market failures that generate overweight and obesity and their economic consequences (pages. 41-52). Mexico: INSP-UNAM.
- Colchero, m., Salgado, j., Unar-Munguia, m., Hernández-ávila, m., & Rivera-Dommarco, J. (2015). Price Elasticity of the Demand for Sugar Sweened Beverages and Soft Drinks in Mexico. Economics and Human Biology, 129-137.
- Congress of the Union. (2019 (1984)). General Health Law New Law published in the Official Gazette of the Federation Last Reform published DF 29-11-2019. Mexico: Ministry of Health.
- Gutiérrez Delgado, C., Guajardo Barrón, V., Unar Munguía, M., Sansores Martínez, D., Ávila Burgos, L., & Arantxa Colchero, M. (2018). Government intervention to correct market failures that generate overweight and obesity and their economic consequences. In u. OR. INSP: National Institute of Public Health, Obesity in Mexico: State of Public Policy and recommendations for its prevention and control (pages. 107-120). Mexico: INSP-UNAM.
- Jensen MD. (2016). Obesity. In s. A. Goldman L, Goldman-Cecil Medicine. 25th ed (page. Chap 220). Philadelphia: Elsevier Saunders.
- KPMG. (2017). Crew industry trends in Mexico-Graphical. Mexico: Kpmg-Anprac.
- Parkin, m. (2018). Economy. Mexico: Pearson.
- Health Secretary. (2015). Economic impact of overweight and obesity in Mexico 1999-2023: Technical note. Mexico: Secretary of Health: Economic Analysis Unit.
- Senate of the Republic. (June 5, 2019). Initiative with Decree Project that reforms and adds various provisions of the General Health Law on the Right to Food Information, signed by Deputy Carmen Medel Pale, of the Parliamentary Group of Morena. Obtained from initiatives, minutes, international instruments and propositions: https: // infosen.senate.Gob.MX/SGSP/GACETA/64/1/2019-06-05-1/ASSETS/DOCUMENTS/INITIL_MEDEL_ETIQUADO.PDF
- T.H. Chan School of Public Health. (March 17, 2020). Obesity Prevention Source. Obtained from food and diet: https: // www.HSPH.Harvard.Edu/Obesity-Prevention-Source/Obesity-Causes/Diet-And-Weight/
- Watts, J., & Segal, L. (2009). Market Failure, Policy Failure and Other Distortions in Chronic Disease Markets. BMC Health Services Research 2009, 9: 102, 1-6.
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