Impact of Tax on Sugar Sweetened Beverages (SSB’s) on Consumer Choices

ECONOMIC PRINCIPLES
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ECONOMIC PRINCIPLES
a) It is noteworthy that the primary objective of tax on Sugar Sweetened Beverages (SSB’s)
is not to act as a source of revenue for the government but to act as a means to ensure the
consumption of these products is lowered. In this regards, it is imperative that the impact
of the tax on the price needs to be studied so as to ensure that the primary objective of
improving the beverage choices of consumers is achieved. If the price is not increased,
then the consumption of SSB would not be altered and the objective of imposing the tax at
the first place would not be met (Mankiw, 2014).
Even when the tax is imposed, it is possible that the price increase in the SSB for the
consumers would not be lesser than the actual tax imposed. This is because the producers are
not in a position to pass 100% of the tax increase to the consumers and hence pass only
partial tax burden. The extent of the tax burden passed on would depend on the price
elasticity of demand for the underlying product. In case of the underlying product being price
elastic, the demand from consumers may be highly sensitive to price and therefore only a
marginal tax increase is passed on to the consumers. In case of product demand being
inelastic, a comparatively larger tax burden is passed to the consumers (Krugman & Wells,
2013).
b) Elasticity plays a vital role with regards to change in quantity sold witnessed when there is
change in price. The demand for a good may be elastic or inelastic based on various
factors such as nature of goods, available of cheaper alternatives and contribution of
budget (Nicholson & Snyder, 2015). With regards to SSB, it is pivotal to note that there
are a significant number of alternatives in the form of non-sweetened beverages coupled
with water. Besides, having comparable price with SSB, these alternative products also are
less harmful to health. As a result, it is fair to conclude that the demand of SSB would be
price elastic (Mankiw, 2014).
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