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BUS702 : Economics for Managers

   

Added on  2020-05-01

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Running Head: Government’s Decision MakingDecision making on Tax Imposition on Sugary Foods and the Suitability of Fiscal PoliciesStudent NameInstitutional AffiliationCourse/NumberInstructor NameDue Date
BUS702 : Economics for Managers_1
Government’s Decision Making2Decision making on Tax Imposition on Sugary Foods and the Suitability of Fiscal PoliciesQuestion 1Fig: Elasticity of demand for Sugary food stuffs Price forSweets and Sugary snacksStPtS*P*Inelastic demand curveQtQ*QuantityA tax on sweets and sugary snacks can have a positive effect of changing the consumers’ behavior from unhealthy to healthy eating. If an assumption is made that the price of these food stuffs before the tax imposition is P* and that a quantity level of Q*, a price increase to a price with tax Pt causes the quantity level to fall to quantity with tax Qt. However, as it can be observed from the diagram above, inelasticity of demand for this food stuffs is making the quantity demanded to fall by a small margin after a big price rise. Thus, taxing this products doesnot result in a significant behavioral change. Tax alone cannot be effective and I can argue against it. However, a combination of this tax and subsidy could be effective since the money raised through the imposed tax will be sufficient to subsidize the affordability of fruits and vegetables and other food stuffs recommended for healthy eating. If the taxation is supplementedby the subsidy, then I would vote for it. The tax imposition therefore has to be higher to impact the consumers’ behavior; a small tax imposition will result in no change owing to the issue of inelasticity.
BUS702 : Economics for Managers_2

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