Suppose it is estimated that for every $1 spent on fatty fast food that government must...

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Economics

Suppose it is estimated that for every $1 spent on fatty fastfood that government must increase health expenditure by $0.25 topay for the medical treatment caused by its consumption through theMedicare System. The Medicare System is funded by Australiantaxpayers. a. Draw a diagram to illustrate the market for FattyFast Food in Tasmania in 2021, showing the: i. Private MB and MCand Market Equilibrium price (PM) and quantity of (QM). ii. SocialMB and MC and Socially Efficient price (PE) and quantity of (QE).iii. Dead Weight Loss. b. Explain why there a Dead Weight Loss? c.If a Pigouvian Tax could be applied to fatty fast food at what rateshould it be set? How would this achieve the Socially Efficientoutcome? d. If there was no Medicare System would there be anyexternality that needs correcting?

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3.7 Ratings (391 Votes)

The medical treatment expenditurethat is incurred by the government for the treatment of people whoconsume more fast food creates a market failure and misallocationof resources as the Healthcare expenditure benefits that areprovided to people that consume more fast food create an extra costfor people who consume less fast food in the form of taxes they paywhich the government See Answer

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