Midweek Task 6

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School
London School of Economics **We aren't endorsed by this school
Course
MICROECONO EC1A3
Subject
Economics
Date
Jul 9, 2023
Pages
2
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MIDWEEK TASK 6
1. What are the government's goals in setting this new tax? One of the main motivations for the introduction of the policy was concern about rates of childhood obesity. It is a fact that over 90% of households in the UK get more than their recommended share of calories from added sugar and a substantial proportion of this sugar does come from carbonated and non-carbonated soft drinks, which is particularly true for households with children. Thus, this evidence suggests that implementing this new tax on sugary soft drinks may be reasonably well. 2. What does Kate mean by 'behavioural responses'? Are these related in some sense to what we are doing this week? 'Behavioural responses' mentioned by Kate in the video implies to what UK households are going to do once the tax is implemented, specifically, how are they going to go about their consumption of sugary drinks post-tax. Whether the sugary drinks consumption decrease, or increase, or stays the same, are all behavioural responses to the change in price. For the second question, yes, this is pretty much related to what we are learning this week in some sense, because a change in the market, particularly, the price of a good, will most likely result a change in consumer's behaviour in consuming those goods. 3. How do elasticities figure in what Kate says? For example, how does the government estimate how much revenue a particular tax will raise? Elasticity examines how responsive a variable is to changes in any of the variable's determinants. In this case, it is highly probable that this question is asking about the price elasticity of demand. The price elasticity of demand refers to the responsiveness of the quantity demanded of a good to a change in price of the good. It is mentioned in the video that the government estimated a specific tax revenue of five hundred million pounds for the second year of its implementation. In my opinion, this estimated tax revenue indicates that the price elasticity of demand of sugary drinks are quite inelastic, since the estimated revenue is quite high, implying that the change in price might bring about a relatively smaller change in the consumption of sugary drinks. 4. How is the notion of substitutability between goods related to the issues that might come up when setting a sugar tax? When setting a sugar tax, the prices of the sugary drinks are going to go up, probably as much as the tax imposed. This will likely cause households in the UK to find substitutes to sugary drinks to fulfil their needs of sugary consumption. For example, since the sugary drinks are getting more expensive, some other sugary substitutes that are relatively cheaper includes chocolates, fruit juices, energy drinks and others. The UK government's target of reducing childhood obesity might be offset due to the households shifting away their consumption of sugary drinks, but increasing the consumption of these substitutes.
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