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This is a Dropdown List question/It is worth 2 points /You have 5 of 5 attempts remaining/There is a 5% attempt penalty 16 Question (2 points) See page 158 Please read the article below, and use the information in the article to answer this question. Mexico's Sugary Drink Tax Makes A Dent in Consumption, Study Claims by Eliza Barclay Mexico's Sugary Drink Tax Makes A Dent In Consumption, Study Claims June 19,20156:00 PMET ELIZA BARCLAY Would you drink fewer cans of soda if a national tax jacked up the price? tttaed force consumers to reckon, via their pocketbooks, with their food and drink habits might be the way to go. countries - or cities - have dared to try a "sin" tax on soda or junk food, no one really knowsif theyd actually work Mexico is one of only a few countries in the world that have managed to pass and implement such a tax.( France has done it. too.and Chile is working on it.) K 16/19 11OF 19 QUESTIONS COMPLETED

Explanation / Answer

PART 1

As per the given article, when tax was imposed on soda, people in Mexico has reduced their consumption of soda but has increased their consumption of water.

So,

Soda was subsitituted with water after the soda tax was imposed in Mexico.

PART 2

Availability of substitutes impact the demand for a given good.

When substitutes are available, demand is more elastic.

PART 2

As per the article,

In January of 2014, the Mexican government imposed a tax of 8% on the sale of cookies and potato chips.

PART 2

Price of box of cookies before tax = 100 pesos

Tax imposed = 8% or 0.08

Amount of tax = 100 * 0.08 = 8 pesos

Price after tax = Price before tax + Tax = 100 + 8 = 108 pesos

The price of box of cookies after tax would be 108 pesos.

Hence, the correct answer is the option (B).

As per the article,

Over the course of 2014, the lowest socio-economic group drank, on average, (a) 9% fewer sugary beverages. By the end of the year, these people found new ways to avoid the tax, and they were consuming (b) 17% fewer sugary drinks.

A soda tax is an example of a deadweight loss. Balancing increased deadweight loss with increased tax revenues and decreased consumption of an unhealthy item is an example of tradeoff.

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