Table of Contents:
Table of Contents: 1
Brief History: 2
Key problems that make the fast food market to fail or become inefficient 2
Externalities: 3
Consumption externalities: 4
Production externality 5
Private Good 6
Imperfect Information 7
Economic model showing inefficiency: 9
Interventions from the Government: 10
Taxing the producers: 10
Regulation and creating awareness: 12
Efficiency and equity of the two policies: 13
Recommendation: 13
References: 14

Brief History:
The fast food industry in New Zealand has developed very quickly with more than 3000 organised food outlets all over the country and is under high scrutiny from the government authorities for the provision of healthier options for the population in the country. As the youngsters are much attracted to the fast food outlets, they become the victims of obesity and other health problems that have resulted from the over-consumption of burgers and sugar-carbonated drinks. There has been reported increase in the obesity and other cardio vascular diseases resulting from weight increase and this has created a concern for the authorities to keep a check on this fast food industry (D’Costa, 2013). Fast Food industry has been in New Zealand since 1970’s, it started because the “North Americans influenced the migrants that came to New Zealand from abroad countries like USA where fast food was first invented, the migrants increased the variety of foods sold in New Zealand. Fast food Chains that started in late 70’s are as follows: Kentucky Fried Chicken (1971), Pizza Hutt (1974), and McDonalds (1976)” (NZ_History, 2016) Fast Food is Oligopoly as there are few firms that provide us a significant portion of food that is supplied in the market overall. I chose this industry because it has been in trend for quite a long time, and this will help me determine just how badly this industry has failed in New Zealand over Time and what must be done to prevent market failure from occurring. This industry has Consumption Externality which has Negative spillovers of Consumptions, and they are as follows: Obesity, Heart diseases, and Cancer. “The government tackles this issue by placing taxing and minimum prices on sugary drinks, and also restricts fast foods in school to help stop obesity in New Zealand especially in children. The government spends over $60 million on obesity programmes” (Heather, 2014,). The Government could intervene by implementing taxes on fatty foods and placing no GST on fruit and vegetables. I would later explain why the implementation of this will help in regard to market failure.

Key problems that make the fast food market to fail or become inefficient

As the fast foods are much of ease to consume, their general social and governmental acceptances make it a merit good. However, its negative health effects on creating obesity and other health issues has created negative externalities thus making it a demerit good. This commodity is also not a public good as it is not provided without profit to the consumers either by the government or by the other firms in the industry. Thus we can say that fast food

Applications of Consumer Choice Theory 1. The federal government...