A. Suppose a 10% tax is levied on the sale of sugary beverages. This tax is...

A. Suppose a 10% tax is levied on the sale of sugary beverages. This tax is collected from sellers of the drinks. A critic of the tax argues that sellers will shift the entire tax to buyers and therefore be no worse off. Evaluate this argument by explaining and illustrating (a graph) the market conditions that would have to prevail for the prediction to be correct. If the critic is correct, how successful will the tax be regarding decreasing obesity rates?

B. In a second graph, explain and illustrate the market conditions necessary for the economic incidence of the tax to fall mainly on sellers of sugary beverages. If these conditions exist, how successful will the tax be regarding generating tax revenue?

C. What does your analysis suggest about the "success" of the Philadelphia sugary beverage tax? Does it depend on how you define success? Explain.

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Expert Solution

Rahul Sunny answered 2 years ago

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