Question

Sales of sugar-sweetened beverages at stores in Seattle dropped about 30.5% in the months after the city adopted a tax on such beverages, says a new study that also looked at sales at stores in Portland, which has no such tax.
Sales in Portland declined only 10.5%, suggesting sales in Seattle dropped much more than they would have without a tax, according to the peer-reviewed study by University of Illinois at Chicago researchers.
The study’s results are the first to measure the impact of Seattle’s tax on beverage sales in the city, and they may bolster claims by supporters that the controversial policy is working as intended.
“From a public health perspective, this is good,” said Jay Krieger, a University of Washington professor who heads the nonprofit Healthy Food America. “People are purchasing less sugary drinks, and we know that sugary drinks are associated with heart disease, diabetes, high blood pressure and strokes.”
Seattle’s tax of 1.75 cents per fluid ounce, which took effect on Jan. 1, 2018, is charged to distributors of sugar-sweetened beverages. Distributors can pass the tax on to stores, and stores to consumers. Proponents said the tax would reduce soda sales and raise money for health and education programs.

Explain, with the aid of a diagram, how a soda tax such as the one described above would impact consumers, producers and society more generally.
Comment on whether or not you support such a tax and why.

Answer 1

Three costs of taxation are: cost for the consumers, cost for the producers and cost for the society as a whole including workers :

govt. imposes a tax with following intentions:

a. to discourage consumption of demerit goods like cigarettes, or any good which creates more loss than benefits.

b. to raise revenue for welfare schemes.

Impact of tax on demand-supply equilibrium:

As shown in the diagram below: earlier demand and supply had equilibrium at price P* and quantity Q*. After taxing, customers pay Pc and producers receive price Pp. government gets revenue (Pc-Pp)*Qt

Customers are worse off as they pay higher price,

producers are worse off as they get lower price, jobs are lost as output reduces and society as worse off as there is under allocation of resources.

I support levying taxes as it gives revenue to government and same money can be used to run welfare schemes. However, negative advertisement is a better way as people are self motivated to reduce consumption.

Deadweight loss is loss to consumers and producers which is shown by dotted part in the figure given below. After tax both consumer and producer surplus decreases.