Question

The Uk government has decided to add sugar tax on sugary beverage.who is benefit and who likely to be disadvantaged by this government intervention,the beverage company?government ?consumer? How do the price elasticity of demand and the price elasticity of supply affect the magnitude of the impact from this intervention?do u think Coca Cola will benefit ?or not? Thank u!

Answer 1

UK governement inyroduced sugar tax on sugary beverage in order to tackle the menace of health issues like obesity which leads to many fatal diseases like diabetis, heart problems etc. The move to add sugar tax on sugary beverage forces soft drink selling companies to lower the sugar content in their products which will keep sugar content in human bodies within limit or raise their product prices which also lowers the demand for high content sugary beverages.

Both government and consumers will be benefitted by the sugar tax. Sugar tax will help government to collect more revenues which can be utilised for the welfare of the nation. Health of consumers will be improved with the help of sugar tax as sugary beverage companies are bound to bring the added sugar down in their products. As sugar is the main cause of many health issues, this tax will help people to live a healthy life by avoiding sugary beverage or drinking it with lower sugar content.

Sugary beverage companies will be the most affected with the implementation of government's sugar tax. As the sugar tax will increase the production costs for companies dealing with sugary beverages, they will either have to lower the sugar content in their beverages which totally will change the taste of the product resulting lesser demand in the market. On the other hand, if they refuse to lower the sugar content, then their production costs will be higher which will take a toll on consumers' pocket. Quntities of sugary beverage will come down with higher prices which also dissatisfies consumer and the demand for the product comes down. Besides consumer also likely to be disadvantaged with the sugar tax as they will have to spend more money on the same quantity or will have to comstates promise with lesser quantity and the same price that was earlier of the product.

As the prices of sugary beverages go up with the sugar tax, the price elasticity of demand will be negative as the price elasticity of demand states that price and quantity of products move in opposite directions. if there is not much differences in the price range of the product, then the demand is inelastic. Price elasticity of suppy states that increase in product prices leads to increase in supply which is always positive with the change in price and supply of products. So supply of sugry beverages will increase with the increase of product prices.

Yes, coca cola will benefit with the sugar tax as it is the only company which refused to compromise with its original recipe of the product which means increase of the production cost will make the company to increase its product prices and decrease the quantity. As there will not be any change in the content of the product like other companies, there is likely the higher chances of the product to be demanded in the market by consumers which leads to company to earn more profits.