Price Elasticity of Soft Drinks, Tobacco Products, and Gasoline

Running head: ECONOMICS
Economics
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ECONOMICS
Answer 1
Elasticity of soft drinks
Price elasticity of the demand for soft drinks, other sugar-sweetened beverages and
energy dense food in Chile
This article states about the price elasticity of demand of the soft beverages in Chile.
The analyses the price elastic of soft drinks and have found that the own price elasticity is -
1.37. As the price elasticity is more than 1, this means the demand for soft drinks are elastic
in nature. The reason is that there is a presence of lot of substitutes of sweetened beverages.
Elastic demand takes place when price or the other factors is known to have a huge impact on
the quantity which the consumers want to buy. The elasticity of soft drinks ranges from 1.29
to 1.39. This also means that with a ten percent increase in price, the consumption will be
decreasing by 13 percent1. The demand for soft drinks are highly sensitive to the price
change. As the demand for sugar sweetened beverages are highly elastic in nature therefore
imposing tax on them for curbing the obesity. When the price of the soft drinks will rise,
people will be consuming more of water, snacks and milk. However, it has also been found
out that the decrease in the consumption of soft sweetened beverages will lead to lower
consumption of snacks as people usually consume both these two goods together.
1 Guerrero-López, C. M., Unar-Munguía, M., & Colchero, M. A. (2017). Price elasticity of the demand for soft
drinks, other sugar-sweetened beverages and energy dense food in Chile. BMC public health, 17(1), 180.

ECONOMICS
Figure 1 Relatively elastic demand of soft drinks
The diagram above shows the diagram of the elastic demand of the sugar sweetened
beverage. The price elasticity of demand refers to the degree of responsiveness in the quantity
demanded with the respect to price. The above diagram suggest that the buyers will be able to
easily substitute away from the soft drinks. Since overconsumption of soft drinks leads to
obesity, the health conscious people might not want that good so much, a small change in
price will be having large effect on the demand of good. Therefore, it have been observed
from the diagram that the gap between the quantities decreased is much bigger than the price
change.
Link- https://www.tobaccoinaustralia.org.au/chapter-13-taxation/13-1-price-elasticity-of-
demand-for-tobacco-produc
Price elasticity of demand for tobacco products
The price elasticity of demand states the extent at which the demand for the product
will rise or fall after the increase or decrease in price. The paper suggests that the demand for
the tobacco products is not as elastic compared to the other consumer products. The elasticity
of demand of tobacco is usually less than 1 which states that it is inelastic in nature.
According to the report published by the Word Bank a 10 percent rise in the price of tobacco

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products will reduce the consumption by only 4 percent in case of developed countries.
Although in case of developing countries, it might reduce by 8 percent. The article states that
the price elasticity of tobacco products for young adults is -0.76 and -0.32 for the adults2. The
International Agency for Research on Cancer found out that the price elasticity of cigarettes
for teenagers is around -0.5. the research from US and Canada suggest that rise in the price of
cigarettes will lead to rise in the sale of hand rolled cigarettes along with other products of
tobacco. The elasticity is negative for tobacco products since most people are addicted
towards them and therefore will continue to consume even if the price increases. The research
conducted on the among adults states that roughly half the impact of price on tobacco
consumption takes place from reductions in prevalence3.
Figure 2 Relatively inelastic demand of ciggarettes
The diagram shows the inelastic demand of the tobacco products. The inelastic demand takes
place when the people buy same amount of goods whether the price drops or increases. The
change in price his seemed to have a bigger effect compared to the change in the quantity
demanded.
2 13.1 Price Elasticity Of Demand For Tobacco Products - Tobacco In Australia." Tobaccoinaustralia.org.au. N.
p., 2019. Web. 15 May 2019.
3 13.1 Price Elasticity Of Demand For Tobacco Products - Tobacco In Australia." Tobaccoinaustralia.org.au. N.
p., 2019. Web. 15 May 2019.