Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 3: Problem 8

In recent years, a number of cities have passed taxes on carbonated sodas to help reduce obesity and raise tax revenues. An article in the New York Times observed, "With that public momentum, a soda tax may be coming to a city near you." If this forecast is correct, what will be the effect on the demand for premium bottled water? Briefly explain. Source: Anahad O'Connor and Margot Sanger-Katz, “As Soda Taxes Gain Wider Acceptance, Your Bottle May Be Next," New York Times, November 26, 2016.

Short Answer

Expert verified
If the forecast on soda tax is correct, the increased price on soda may lead consumers to switch to its substitute - premium bottled water, hence increasing its demand.

Step by step solution

01

Understand the Concept

To answer this question, we need to understand the concept of substitution goods in economics. Substitution goods are products that satisfy the same need or want as another product. In this case, carbonated sodas and premium bottled water can be seen as substitution goods as both are beverages consumed to quench thirst.
02

Analyze the Soda Tax Impact

Introduction of tax on soda will likely increase its price. According to the law of demand, when prices go up, quantity demanded goes down.
03

Shift in Demand for Bottled Water

With the soda prices up, some consumers may switch to premium bottled water as an alternative, hence increasing its demand.
04

Formulate the Conclusion

If taxes on carbonated sodas lead to price increases, and given that bottled water is a substitute good, it can be predicted that the demand for premium bottled water will increase as consumers switch from sodas to bottled water due to the cost factor.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

According to an article in the Wall Street Journal, in early 2017, President Donald Trump was considering whether to reverse a requirement by the Environmental Protection Agency that oil refiners increase the amount of ethanol they blend with gasoline. If the requirement were to remain, the result would be an increase in demand for ethanol, which is made from corn. Many U.S. farmers can use the same acreage to grow either corn or soybeans. Use a demand and supply graph to analyze the effect on the equilibrium price of soybeans resulting from an increase in the demand for corn.

Briefly explain whether you agree with the following statement: "When there is a shortage of a good, consumers eventually give up trying to buy it, so the demand for the good declines, and the price falls until the market is finally in equilibrium."

What is a demand schedule? What is a demand curve?

Related to the Apply the Concept on page 81\(]\) An article on marketwatch.com stated, "While the fizzy soda drinks companies have experienced an annual volume sales decline since \(2003,\) bottled water grew every year over the last two decades, except 2009 during the depths of the Great Recession." a. What factors have caused a decline in sales of carbonated ("fizzy") beverages? Is it likely that those factors will lead to further declines in demand in the future? Briefly explain. b. Why might sales of bottled water be likely to decline during a recession, when employment and household incomes fall? Would sales of premium bottled water be likely to decline by more or by less during a recession than sales of regular bottled water? Briefly explain.

From 1979 to 2015 , China had a policy that allowed couples to have only one child. (Since 2016 , couples have been allowed to have two children.) The one- child policy caused a change in the demographics of China. Between 1980 and 2015 , the share of the population aged 14 and under decreased from 36 percent to 17 percent. And, as parents attempted to ensure that the lone child was a son, the number of male children relative to female children increased. Choose three goods and explain how the demand for them has been affected by China's one-child policy. Sources: World Bank, World Development Indicators, April 2016; and "China New 'Two Child' Policy Increases Births by 7.9 Percent, Government Says," cbsnews.com, January 23, 2017 .
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free