Question
Consider the market for sugar-sweetened beverages (SSBs) like sodas, juices, and sports drinks in Providence. Draw a graph showing a hypothetical market for SSBs in
Consider the market for sugar-sweetened beverages (SSBs) like sodas, juices, and sports drinks in Providence.
Draw a graph showing a hypothetical market for SSBs in Providence. Clearly label the axes, curves, and equilibrium points. (2 points)
Many local areas have implemented taxes on SSBs to reduce their consumption given the link between excess SSB consumption and obesity, particularly among children. Suppose Providence institutes a 25-cent ($0.25) tax per SSB sold in Providence. The tax would be collected by sellers (like other sales taxes). Show how this tax would affect the market for SSBs in Providence on your graph. Clearly label any new curves and equilibrium points. How would this affect the market price and level of consumption of SSBs in Providence? (5 points)
Do you think the theoretical prediction of changes in the market price and level of consumption in part (b) would be likely to occur? Explain. (5 points)
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