A Tax on Sugary Drinks

We'll apply demand and supply analysis to a real issue in the news: a tax on sugary drinks imposed in Berkeley California. Here's a recent article (August 25) from the New York Times, titled "More evidence that soda taxes cut soda drinking." Read the article about the Berkeley soft drink tax. Write an essay of 125 to 200 words analyzing the article about the sugary drink tax using demand and supply. To analyze this problem, consider:

- That the tax means consumers will pay a higher price for sugary drinks, but only part of that price becomes revenue for retailers and manufacturers. Tax revenue goes to the government.

- The factors that determine whether the demand for a product is elastic or inelastic. Review the discussion in the textbook on pages 35-37.

- The many ways that people could respond to a rise in sugary drink prices.

- Using the textbook for analysis, and the article for evidence, about the sugary drink tax.

A good essay will answer the following questions:

1. Berkeley passed the tax to try to improve public health. How could a tax on sugary drinks improve health, and how could it fail to improve health?

2. What is the evidence that the demand for sugary drinks is elastic or inelastic?

3. Why would the demand elasticity be different in low income communities compared to high income communities? What is the textbook analysis of this difference, and what reasons are given in the article?

4. What effect is the tax likely to have on soft-drink manufacturers and retailers? What do they think about the tax?