Question

ECONOMICS IN PRACTICE Soda Beverage Choice Many countries have started imposing a tax on soda bev erages as a measure to raise revenue as well as to prevent obesity. You may expect that as the taxes reduce soda bever age consumption, the revenue raised would also decrease However, the government tax policy is always effective: this is because either the tax effectively reduces soda beverage consumption or if the consumption doesnt decrease, t government raises huge revenue from the tax. From an econ omist's perspective the impact of this tax is not only appeal- ing but also a reflection of a significant policy question. Researchers have, to some extent, looked at taxes and soda beverage consumption from different viewpoints.Certain inqui- ries were not related to how much the tax reduced the consump- tion of soda, but more about how the taxes might affect the type of high-calorie beverages people consume. Governments tax soda or soft drinks, which include all sugar-sweetened bever beverages is higher in American stores. So ages, as fixed prices per can, bottle or pack, which makes the end consequences when the relative price of po prices more expensive, Asian countries, like India and Thailand, rise? Sales shifted to other cheaper, high-caloric or impose a 20 percent tax on carbonated drinks while the regular versions of soda beverages soda tax in the United States ranges between 3 and 7 percent. In Mexico,soda prices have risen by about 12 percent. what were the The soda tax varies across different types of soda beverages, THINKING PRACTICALLY slope of the budget line accondingly, For example, the sope of 1. Using the utility-maximizing rule, illustrate how the budget line after tax between popular and non-popular types of soda beverages was 1.74(4.69/2.69) per 12-can on sale. If taxes are subtracted, the slope rises to 260 (3.25/1.25) and the Nalin Viboonchars, "Time foaas" Baghok Pt, Aprid 201 relative price of the popular soda drinks has gone up outlets, states and countries. Therefore, the tax will change the lope of the budget line accordingly. For example, the of consumers who are affected by the soda tax policy make choices to achieve an optimal decision. effiey Groggee, Soda Tases and The Prices of Sodas and Other Drinks Research inquiries on these differences have also shown NMIR Working Paper 21197, Masachuetts Avenue, Cambridg, Ma 2015, crvations Some Mexican consumers may be able to elude t ns s instances that taxes can be evaded on Native American res. lason M Fletchera, David E Pri¡¡เล, and Nathan Tenk."The ethm of and weright outcomes hi an hapce tax by crossing into the U.S. borders, where prices of soda Jeal of Pblcs,Dcember 3010.967-974 Anemona Hartocollis, "Failure of State Soda Tax Plan Reflects Pwer of Antar Message." The Non-Tw, beverages are moderately cheaper because no t tax rates are charged. Thus, the relative price of popular soda axes or lesser 20

Answer 1

Consumers must choose among alternative goods with their limited money incomes. The Utility Maximization rule states: consumers decide to allocate their money incomes so that the last dollar spent on each product purchased yields the same amount of extra marginal utility. Optimal Decision Goods and services purchased by a consumer that provides the highest level of utility possible. Utility Maximization. Achieving the highest amount of satisfaction given a consumers budget constraint. 51 6150 S3 When the cost of 12 cans was $170 customer purchased 12 cans. However, due to price rise the consumer bought 8 cans.