Question

A tax on Sugar Sweetened Beverages (SSB) introduced in Mexico in 2014 increased the price of SSB

by about 10%. An evaluation of the first two years of this measure found that SSB consumption fell

on average by 7.6%, with a larger decrease (11.7%) in low income households. The study also

estimated an increase in consumption of unsweetened beverages, particularly bottled water, of

2.1% (WHO, 2017)

Draw a demand and supply diagram for the market for Sugar Sweetened Beverages (SSB).

Name and fully label your diagram including both axes, and indicate and explain points of

interest using P for price (P1, P2 etc) and Q for quantity (Q1, Q2 etc). Draw the demand curve

assuming the elasticity for the whole Mexican economy holds. (Don’t use actual numbers, it

can’t be exact with the information given – just decide roughly how steep or flat to draw it,

and give a reason for your choice).