Sugar Tax In Australia Question and Answer 2022

Sugar Tax in Australia
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Answer 1
(a) (i) Own price elasticity of demand for the economy on average (OPEDE)
(a) (ii) Own price elasticity of demand for low income households (OPEDLIH)

(b) Own price elasticity of demand for the economy on average is 0.76, which is lower than 1. It means that demand for Sugar Sweetened
Beverages (SSB) in case of economy on average is relatively price inelastic (Jawad et al. 2018). However, OPED for low income households is
1.17, which is greater than 1. Therefore, demand for SSB in case of low income household is relatively price elastic. Hence, it can be said that,
low income households are more responsive to the tax on SSB.
(c) Responsiveness to a price increases depends on various factors and they are
• Income level: Higher the income of individuals lower will be the responsiveness to price increase and vice versa.
• Nature of commodity: Responsiveness to price depends on the type of commodity that is if necessary responsiveness would be low and if
luxury then responsive would be high. There are other kind of commodities such as normal, giffen and demerit.
• Availability of substitutes: Goods with more number of substitutes have more responsive to price than the goods that have no or low number
of substitutes (Lee, Fox and Nayga Jr 2019).
• Price: Responsiveness of price also depends on price of the product. It means that if the price of a product is very high then responsive to it
increase in price would be high too and vice versa.

• Number of uses: Products with more number of uses have less responsive to price increase in comparison to product with less number or
single use.
• Delay in consumption: Consumption of products that can be delayed for longer period have more responsiveness to price increase in
comparison to the consumption of goods that cannot be delayed much.
• Habit: Goods that become necessary due to habit become less responsive to increase in price.
• Time: Time plays a crucial role in responsiveness to price increase. Greater the time responsiveness to price increase rises.
• Expenditure share: Higher the expenditure share of a product, higher its responsiveness to price increase.
The difference found in parts (a) and (b) is that for low income households OPED is higher than Mexican economy as a whole. Thus,
responsiveness of low income households to the increase in price of SSB is higher than the economy on average. This has happened due to the
factors that determine responsiveness to a price increase (Loi and Le Ng 2018). The factors that acted in the case are income, time, habit,
availability of substitute, nature of commodity and price.