Comments on: Would a soda tax make Americans better off? http://welkerswikinomics.com/blog/2009/10/20/would-a-soda-tax-make-americans-better-off/ for students and teachers of Economics Wed, 08 Feb 2012 23:39:55 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Isabella & Lucea http://welkerswikinomics.com/blog/2009/10/20/would-a-soda-tax-make-americans-better-off/comment-page-1/#comment-13643 Isabella & Lucea Wed, 02 Mar 2011 10:23:54 +0000 http://welkerswikinomics.com/blog/2009/05/12/would-a-soda-tax-make-americans-better-off/#comment-13643 Questions to consider: 1. How do you reconcile the seemingly conflicting goals of reducing soda consumption and raising revenues to pay for health care? These conflicting goals can be reconciled because the reduce of soda consumption will mean that the amount of revenue to pay for health care will be reduced due to the decrease of patients requiring advanced care for diabetes, obesity and cavities. 2. Which effect do you expect to dominate: reduction in quantity demanded due to higher prices or increased revenue from higher prices? Because the demand for soda is inelastic, the effect would include increased revenue from higher prices because sodas have addictive properties. If the tax is not that noticeable, most consumers won't notice it and therefore continue their consumption. 3. Assuming the market for sodas (pop around here) is currently working efficiently, what effect do you expect a new tax to have on consumer well-being, producer well-being, government revenue and total social welfare? Consumer well being will decrease. Producer well being will decrease Government revenue will increase Total social welfare will increase 4. What role do the elasticity of demand and elasticity of supply play in your answers to 1,2 and 3? The elasticity of demand is very inelastic therefore not a lot of people would care if the price of soda went up by a bit. Therefore, the quantity of demand would also remain relatively stable despite the change in price. Questions to consider:

1. How do you reconcile the seemingly conflicting goals of reducing soda consumption and raising revenues to pay for health care?

These conflicting goals can be reconciled because the reduce of soda consumption will mean that the amount of revenue to pay for health care will be reduced due to the decrease of patients requiring advanced care for diabetes, obesity and cavities.

2. Which effect do you expect to dominate: reduction in quantity demanded due to higher prices or increased revenue from higher prices?

Because the demand for soda is inelastic, the effect would include increased revenue from higher prices because sodas have addictive properties. If the tax is not that noticeable, most consumers won't notice it and therefore continue their consumption.

3. Assuming the market for sodas (pop around here) is currently working efficiently, what effect do you expect a new tax to have on consumer well-being, producer well-being, government revenue and total social welfare?

Consumer well being will decrease.

Producer well being will decrease

Government revenue will increase

Total social welfare will increase

4. What role do the elasticity of demand and elasticity of supply play in your answers to 1,2 and 3?

The elasticity of demand is very inelastic therefore not a lot of people would care if the price of soda went up by a bit. Therefore, the quantity of demand would also remain relatively stable despite the change in price.

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]]> By: Debbie http://welkerswikinomics.com/blog/2009/10/20/would-a-soda-tax-make-americans-better-off/comment-page-1/#comment-13614 Debbie Fri, 25 Feb 2011 15:36:39 +0000 http://welkerswikinomics.com/blog/2009/05/12/would-a-soda-tax-make-americans-better-off/#comment-13614 1. How do you reconcile the seemingly conflicting goals of reducing soda consumption and raising revenues to pay for health care? To achieve the goal of decreasing soda consumption as well as raising revenues to pay for health care one could make a tax on sodas, which would reduce the consumption and with the money from the taxing one could achieve a larger revenue to pay for health care. 2. Which effect do you expect to dominate: reduction in quantity demanded due to higher prices or increased revenue from higher prices? I think the taxing would need to be very high for people not to want to consume sodas anymore, which is why I think that the revenues would be higher due to the tax rather than de quantity of the demand decreasing. 3. Assuming the market for sodas (pop around here) is currently working efficiently, what effect do you expect a new tax to have on consumer well-being, producer well-being, government revenue and total social welfare? The increase in price of soda would decrease the consumers well-being as they need to pay more, the producer's well-being would stay the same, and the governments revenue would increase with the price of the sodas. The total social welfare would probably increase a bit as some people would be living healthier without any sodas. 4. What role do the elasticity of demand and elasticity of supply play in your answers to 1,2 and 3? The elasticity of demand in this example is pretty inelastic as I don't think that many people would care if the price of a can of soda was raised by a few cents. This means that the quantity of demand would probably not change too much even if the price does. 1. How do you reconcile the seemingly conflicting goals of reducing soda consumption and raising revenues to pay for health care?

To achieve the goal of decreasing soda consumption as well as raising revenues to pay for health care one could make a tax on sodas, which would reduce the consumption and with the money from the taxing one could achieve a larger revenue to pay for health care.

2. Which effect do you expect to dominate: reduction in quantity demanded due to higher prices or increased revenue from higher prices?

I think the taxing would need to be very high for people not to want to consume sodas anymore, which is why I think that the revenues would be higher due to the tax rather than de quantity of the demand decreasing.

3. Assuming the market for sodas (pop around here) is currently working efficiently, what effect do you expect a new tax to have on consumer well-being, producer well-being, government revenue and total social welfare?

The increase in price of soda would decrease the consumers well-being as they need to pay more, the producer's well-being would stay the same, and the governments revenue would increase with the price of the sodas. The total social welfare would probably increase a bit as some people would be living healthier without any sodas.

4. What role do the elasticity of demand and elasticity of supply play in your answers to 1,2 and 3?

The elasticity of demand in this example is pretty inelastic as I don't think that many people would care if the price of a can of soda was raised by a few cents. This means that the quantity of demand would probably not change too much even if the price does.

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]]> By: Khairul Rusydi http://welkerswikinomics.com/blog/2009/10/20/would-a-soda-tax-make-americans-better-off/comment-page-1/#comment-8967 Khairul Rusydi Tue, 10 Nov 2009 20:51:29 +0000 http://welkerswikinomics.com/blog/2009/05/12/would-a-soda-tax-make-americans-better-off/#comment-8967 1. This can be done by imposing a tax on the producers of soda. The revenue generated from this tax can then be used to finance healthcare policies. With a specific-tax, for example, the new equilibrium price increases ceteris paribus, as demonstrated by a leftward shift in the SS curve (or the Marginal Private Cost Curve). At this higher price, the qty dd and consumption of soda thus decreases. 2. Both will occur. Dominance of one over the other is indeterminate unless the PED of soda is known. Assuming that the demand for all soda is elastic, due to the availability of other sugary beverages like sports drinks and hot chocolate (who could resist hot chocolate anyway?) and assuming that the utility and satisfaction that consumers get from these is equivalent to that of soda, a PED that is positive and more than 1 indicates that an increase in price would lead to to a more than proportional fall in quantity demanded. Thus there would be a net revenue lost to the producer. 3. Assume that 'working efficiently' here implies that it is at the Socially Optinal Level and hence no negative externalities that would otherwise arise from the health problems from excessive drinking of soda and the strain it would place on state-funded healthcare, which are manifestations of Deadweight Welfare Loss. Hence in this hypothetically optimal state of production and consumption, consumer surplus would decrease, producer surplus would decrease, government revenue would increase and total social welfare would decrease. This is because there would be a DWL when a tax is imposed on an efficient market as there is now an underproduction compared to the Socially Optimal Level of output that was initially determined at the previous equilibrium level of Price and Qty. 4. PED and PES would influence the incidence of the tax and whether greater burden would fall on the producer or consumer. If PED is (relatively more) inelastic (than PES), the consumer's share of the tax would be greater. If PES is (relatively more) inelastic than (than PED), the producer's share of the tax would be greater. 1. This can be done by imposing a tax on the producers of soda. The revenue generated from this tax can then be used to finance healthcare policies. With a specific-tax, for example, the new equilibrium price increases ceteris paribus, as demonstrated by a leftward shift in the SS curve (or the Marginal Private Cost Curve). At this higher price, the qty dd and consumption of soda thus decreases.

2. Both will occur. Dominance of one over the other is indeterminate unless the PED of soda is known. Assuming that the demand for all soda is elastic, due to the availability of other sugary beverages like sports drinks and hot chocolate (who could resist hot chocolate anyway?) and assuming that the utility and satisfaction that consumers get from these is equivalent to that of soda, a PED that is positive and more than 1 indicates that an increase in price would lead to to a more than proportional fall in quantity demanded. Thus there would be a net revenue lost to the producer.

3. Assume that 'working efficiently' here implies that it is at the Socially Optinal Level and hence no negative externalities that would otherwise arise from the health problems from excessive drinking of soda and the strain it would place on state-funded healthcare, which are manifestations of Deadweight Welfare Loss.

Hence in this hypothetically optimal state of production and consumption, consumer surplus would decrease, producer surplus would decrease, government revenue would increase and total social welfare would decrease. This is because there would be a DWL when a tax is imposed on an efficient market as there is now an underproduction compared to the Socially Optimal Level of output that was initially determined at the previous equilibrium level of Price and Qty.

4. PED and PES would influence the incidence of the tax and whether greater burden would fall on the producer or consumer. If PED is (relatively more) inelastic (than PES), the consumer's share of the tax would be greater. If PES is (relatively more) inelastic than (than PED), the producer's share of the tax would be greater.

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]]> By: David Dzidzikashvili http://welkerswikinomics.com/blog/2009/10/20/would-a-soda-tax-make-americans-better-off/comment-page-1/#comment-8615 David Dzidzikashvili Fri, 23 Oct 2009 05:18:26 +0000 http://welkerswikinomics.com/blog/2009/05/12/would-a-soda-tax-make-americans-better-off/#comment-8615 I think the question should be does any tax make Americans better off? Soda tax is just an additional price increase that will be passed on to the consumers. This can lower the demand and this will have no real benefit. If we assume that demand won’t change for soda sales, then this should bring more tax money, but during economic hard times, this does not look like a smart policy decision. We need to keep people buying more goods & products, any price increase won’t result in more buying, taking in consideration that people are more careful with spending, due to economic crisis. I think the question should be does any tax make Americans better off? Soda tax is just an additional price increase that will be passed on to the consumers. This can lower the demand and this will have no real benefit. If we assume that demand won’t change for soda sales, then this should bring more tax money, but during economic hard times, this does not look like a smart policy decision. We need to keep people buying more goods & products, any price increase won’t result in more buying, taking in consideration that people are more careful with spending, due to economic crisis.

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]]> By: Colton Bos http://welkerswikinomics.com/blog/2009/10/20/would-a-soda-tax-make-americans-better-off/comment-page-1/#comment-19963 Colton Bos Tue, 30 Nov 1999 00:00:00 +0000 http://welkerswikinomics.com/blog/2009/05/12/would-a-soda-tax-make-americans-better-off/#comment-19963 Its great as your other posts : D, thankyou for putting up. "What makes something special is not just what you have to gain, but what you feel there is to lose." by Andre Agassi. Its great as your other posts : D, thankyou for putting up. “What makes something special is not just what you have to gain, but what you feel there is to lose.” by Andre Agassi.

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