According to studies undertaken by the US Department of Agriculture, the price elasticity of demand for cigarettes is between – 0.3 and – 0.4 and the income elasticity is about + 0.5. Suppose Congress, influenced by studies linking cigarette smoking to cancer, plans to raise the excise tax on cigarettes so the price rises by 10%. Estimate the effect that the price increase will have on cigarette consumption and consumer spending on cigarettes (in percentage terms). A few states and cities across the United States have imposed a soda tax or a sugar tax on soft drinks, to reduce overall sugar consumption. In most forms, the tax is designed to discourage the production, importation, and purchase of carbonated, uncarbonated, sports and energy drinks with excess levels of added sugar. This kind of tax is a matter of public debate and often strongly opposed by food and beverage producers. Advocates promote this tax as an incentive to cut down on unhealthy diets and offset the growing economic costs of obesity. Do you support a sugar or soda tax? If so, why? If not, why not? Please discuss in detail by showing solid economic reasons to support your view.
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