Taxing Sugary Drinks: A Solution to Reduce Consumption and Improve Health

Running head: ECONOMICS
Economics
Name of the Student
Name of the University
Course ID

1ECONOMICS
Research and Critical Review Exercise
Demand, Supply and Equilibrium
Introduction
Different principles of economics influence market decision having impact on national
and global economy. The essay critically evaluates an article published on Sydney Morning
Herald named “Taxing sugary drinks will save lives and cut obesity”. The essay particularly
aims to analyze different economic aspects discussed in the article belonging to the field of
microeconomics or macroeconomics. In the article, tax has been considered as an effective way
to reduce consumption of sugar and improve state of health of Australians. The article also
suggests some alternative way to attain the goal of reduced sugar consumption.
Critical review
Various soft drinks, fruit drinks and sports drinks contain high proportion of sugar and
are mostly attractive to kids. The relatively cheaper price of sugar drinks compared to milk and
water raises demand for sugary drinks. Too much consumption of sugar sweetened beverages are
responsible for causing tooth decay of kids (Martin 2018). Consumption of sugary drinks among
average Australians cause health issues related to weight and obesity. The production and sales
of sugary drinks thus have an external cost in the form of deteriorating health condition. This
kind of harmful external cost in economics is termed as negative externality. The concept of
negative externality is one important topic of microeconomics. Externality is economics refer to
additional cost or benefits associated with production and consumption of some commodities
(Baumol and Blinder 2015). The costs and benefits are imposed on third party of the transaction
and are not reflected in the market price. In the presence of such externalities free market

2ECONOMICS
produces an inefficient outcome. Government intervention therefore is needed to ensure
efficiency in the market. Similarly, the imposed health cost from production and sales of sugar
sweetened beverages is not taken into consideration by the sellers (Jones, Veerman and
Hammond 2017). Government therefore needs to intervene in the market and designs policy
measures to discourage both sales and consumption of such beverages.
Price is an effective tool that can influence both demand and supply. As stated in the law
of demand, demand of a commodity is inversely related with its price. That is demand decreases
as price goes up and vice-versa. The law of supply depicts the relation between quantity supplied
and price. It states a direct association between price and supply. That is supply increase with a
gain in price and vice versa (Kreps 2019). One of the primary reason for increasing demand of
sugary drinks is the marketing strategy of the sellers to influence choice of average Australians.
When Coke is positioned as sexy and fun, Sport drinks are promoted as an idea choice for
workout and price of Slurpee is only a dollar then Australians cannot be blamed for excessive
consumption of sugary drinks (Escobar et al. 2013). It is the marketing strategy of big beverages
companies to influenced demand knowing the consumer Psychology.
Therefore, along with measures like regulating marketing, better labelling and an
effective education a levy on sugary beverages seems to be an effective means for improving
diets and addressing the problem of obesity. Several nations have already imposed such a levy
with an effective result (Kansagra et al. 2015). In Mexico, implementation of a tax on sugary
drinks is seen as an effective tool to encourage people to lower their consumption of sugary
drinks. Tax influences both demand and supply of sugary drinks. With a levy on such beverages
the burden is shared between buyers and seller depending on elasticity of demand and elasticity
of supply (Cowen and Tabarrok 2015). Sellers after the imposition of tax receives a price which