After Seattle soda tax, Costco says case of Gatorade costs $26.33

by Jeffry Bartash

After Seattle soda tax, Costco says case of Gatorade costs $26.33 instead of $15.99.

Discount giant takes novel approach on hotly debated sugar tax.

Costco is telling customers in Seattle just how much a new tax on sugary drinks will cost them.

Costco has adopted a novel way to show its objection to a new soda tax in Seattle: it's telling customers just how much the tax will cost and encouraging them to buy soft drinks outside the city.

The city recently enacted a tax of 1.75 cents an ounce on sugary beverages. The result: a case of Gatorade that used to cost $15.99 now costs $26.33a 65% markup.

And a case of Dr. Pepper now costs $17.55 instead of $9.99, according to Costco. That's a 76% surcharge.

The Costco store in Seattle was also kind of enough to let customers know the tax did not apply in the company's stores outside the city.

Seattle is one of a handful of cities whose liberal governments have raised taxes on sugary drinks to discourage people from drinking them. Studies have linked excessive soda consumption to health problems such as obesity.

So far the effects of higher soda taxes have been limited. In some cities such as Berkeley, Calif., stores barely raised prices and consumption was little changed. Keeping soda prices on the lower side helps bring customers into stores. In other cities like Philadelphia, prices have risen and consumption appears to have declined. But it's also possible that shoppers made more soda purchases outside the city.

Soda-tax supporters in Washington state are trying to pass a statewide levy to prevent shoppers from getting around it, but it failed to pass in 2017 and is unlikely to do so this year, either.

According to the Seattle city government, consumers would not respond to higher prices. Suppose that is true. On the diagram below, use the straight-line tool to illustrate what the demand curve would look like. Assume that the equilibrium price of a case of Gatorade is $20. When you draw the demand curve, extend it all the way to the top of the graph.

The graph below provides a more realistic illustration of the Gatorade market. Assume that S1is the supply curve before the tax and that S2is the supply curve after the tax. Note that the initial price of $16 and the final price of $26 are roughly the same as the prices mentioned in the article. Use the area drawing tool to draw thetotal tax revenue.