Evaluating a Policy's Effectiveness Using Consumer Theory
A city government is considering a new tax on sugary drinks to reduce consumption. An economist predicts that this tax, by raising the price, will lead to a total decrease in consumption of 100,000 drinks per week. They also predict that the component of this decrease attributable to the reduction in consumers' real purchasing power will be a reduction of 10,000 drinks.
A policy critic argues, 'This tax is a poor tool for public health because the vast majority of the change is simply consumers switching to other drinks, not a meaningful change in behavior due to feeling less wealthy.'
Evaluate the critic's argument. Your evaluation must:
- First, calculate the change in consumption that is due solely to sugary drinks becoming more expensive relative to other goods.
- Use your calculation to assess whether the critic's claim about the magnitude of the effects is factually correct.
- Finally, discuss whether this breakdown of effects supports the critic's conclusion that the tax is a 'poor tool.'
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Science
Economy
CORE Econ
Social Science
Empirical Science
Economics
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
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