Question

PLEASE REPLY ASAP

please throughly explain:

The aim of the assignment is to critically assess economic theory using a case study. That is, to analyze a real-world event using economic theory and data:

Don't defend candy tax- instead evaluate the model based on the event (the focal point is the model not the event)

Use data to assess whether or not your dependent variable acts in the way you expect it to

use a case study to back it up and include data

Area of interest: The effect of a "candy tax" on cities

Thesis:  One can examine the effect of “candy tax” in cities by stating that since certain states implement a “candy tax”, the demand for producing and consuming candies will be lower for them than the states that are exempt from this tax.his, in turn, will decrease the demand for candy and increase the demand for healthier alternatives.

Independent variable: he price of candy with tax

Dependent variable: the demand for candy

MODEL: the demand for candy based on state sales tax.

Things to include:

-Candy is an elastic good ( if the price increases due to tax, one can choose a healthier alternative like fruit)

Answer 1

The economic theory to explain the given situation is THEORY OF DEMAND.

Theory of demand states as Quantity demanded decreases with the increase in price and increases with the fall in price.

So, price is the independent variable while Quantity demanded is the dependent variable.

Lets examplify it with graph of candy------

Suppose the price of candy is $5, and Quantity of candy demanded is 20 .

See graph-----

Lets Suppose ,in order to prevent Consumption of candies ( an unhealthy eatable) , govt imposes tax on candy , which raises its price.

Lets discuss the effect due to candy tax----

The inverse law of demand applies here

With the increase in price of candy, its Quantity demanded will reduce

Let me explain it with the help of graph-_

The graph shows the impact of candy tax on demand of candy.We see that ,with increase in price of candy,to P¹, its Quantity demanded reduces from Q to Q¹.

# Deviation of dependent variable ------

We know that increase in price reduces Quantity demanded for candy, but it increases demand for some substitutes like fruit healthier than candy.

The impact on the demand of fruits is called SUBSTITUTION EFFECT.

Lets depict it on graph-----

The graph shows the demand curve of healthy substitute good like fruit.

We find that initial price of fruit is p and Quantity demanded is Q. When price of candy Increases, the demand for fruits increases though its price is not changed.

THI HOW THE DEVIATION OF DEPENDENT VARIABLE (Q) WITHOUT ANY CHANGE IN INDEPENDENT VARIABLE DUE TO SUBSTITUTION EFFECT.