Question

if the government imposes a tax on sugar, raising it's price by 25%, what is the measure of the economic loss suffered by domestic households who consume sugar? Operationally, how would you measure the amount of this loss? Might firms that process and sell sugar suffer a loss, too? What is the measure of their loss?

Answer 1

operationally

Let the price before increase be 100

then,as the percentage increase =25%
therefore,increase in price = 25/100*100 = 25

therefore , increased price = 125

So, Earlier price was 100 and increased price is 125

therefore the percentage by which households should decrease the consumption be 25/125*100 =20%

same with the firm process and sell sugary products they have to suffer a loss of 20% .

Imposition of sugar tax have impact on beverage purchases and consumption.

firms that process and sell sugar suffer a loss, too? What is the measure of their loss?

Impact of sugar tax

1. Price increase of sugar which indirectly suggest the supplier to increase the price more than the tax to increase profitability

2. Substitution effect will be there due to indirect increases in prices.

3. Poor people will have more burden of tax rather than rich people.

Let's take an example of a Coca-Cola Market.

Coca-Cola Is sugar beverage industry increase on sugar tax Will increase the production price of Coca-Cola beverage and this result in indirect increase in the price of Coca-Cola Which customer have to pay and this will result in decline in the sales of Coca-Cola and company might suffer loss due to increase in prices of Coca-Cola people may do not prefer to buy Coca-Cola as they have to pay more price for the same bottle and this will eventually decline the sale of Coca-Cola product and to cope up and maintain a profitable account Coca-Cola has to introduce a product with zero sugar or something like that the, and parallelly it will increase the purchase of Coke zero sugar because it will work as a substitute to people

Now let's take an example of Household

Sugar tax could reduce the consumption of sugary beverages which side-by-side could improve people health and generate revenue in middle income and high income countries.

We can conclude that increase in sugar tax increases the price of sugar beverages this will affect on price depend on the parameter pass on rate and this person rate will pass on to customers in the form of higher retail price In some areas it is hundred percent pass on rate in some it is less than hundred person and eventually it is more than hundred percent in some countries.

Increased price of sugar beverages on consumption and this is depend on two key parametres : Which are the own price elastic city and the second is the cross price elasticities.

1 "The own price elasticity is responsiveness of changes in consumption of sugar beverages to change in their price".

2 The cross price elasticities it shows the strength of substitution away from sugar beverages to other substitute goods which are relatively cheap substitute and the substitute considered as milk and fruit juice.

Finally we can conclude that Impact of 25% tax on sugar on their consumption and corresponding health revenue affect.

However, tax has the potential to decline the consumption of sugar beverages and we have A positive impact on health and revenue generated.

The tax has a potential to rise revenue in millions annually and these increased revenues can be used as supplement public health promotion programme which encourage healthier lifestyle further more it improve countries health system.

Now let's take an example of shops selling sugary products.

As increase in tax increases the retail price of a product indirectly this will result in decline of the sale of product.So shopkeepers have to come up with the idea of discounting products and giving discount on sugary products to increase the sale of the product and discount will encourage people to buy more as they have to pay comparatively less for the same product.But as the imposition of tax increase the expenditure of the people it discourages people to buy sugary products.