MAE101: Economic Principles Report
Question 1: The economics of a sugar tax with reference to evidence from Mexico
A tax on Sugar Sweetened Beverages (SSB) introduced in Mexico in 2014 increased the price of SSB by about 10%. An evaluation of the first two years of this measure found that SSB consumption fell on average by 7.6%, with a larger decrease (11.7%) in low income households. The study also estimated an increase in consumption of unsweetened beverages, particularly bottled water, of 2.1% (WHO, 2017)a). What is the own price elasticity of demand for SSBs in Mexico based on the figures given in the WHO article? Calculate it
i) For the economy on average, and ii) For low income households 4 points.
b). Based on your results to part (a), which group is more responsive to the tax on SSB – low income households or the Mexican economy as a whole? 2 points
c). Explain factors that determine responsiveness to a price increase. Which of these factors might explain the difference you have found in parts (a) and (b). 7 points
d). Calculate the cross price elasticity between SSB and bottled water, based on the figures given in the World Health Organisation article. Use your answer to explain what cross price elasticity measures. 3 points
e). Draw a demand and supply diagram for the market for Sugar Sweetened Beverages (SSB). Name and fully label your diagram including both axes, and indicate and explain points of interest using P for price (P1, P2 etc) and Q for quantity (Q1, Q2 etc). Draw the demand curve assuming the elasticity for the whole Mexican economy holds. (Don’t use actual numbers, it can’t be exact with the information given – just decide roughly how steep or flat to draw it, and give a reason for your choice). 8 points
f). Now work further on your diagram in part (e) to show the impact of a tax on SSB. Illustrate and explain how the tax affects the price for consumers and producers and the quantity consumed. Also indicate the area on the diagram that represents tax revenue. 8 points
g). Some experts recommend a public campaign to raise awareness about the health effects of too much sugar either instead of, or combined with a tax.
i) Redraw your diagram from part (e) above (that is, before a tax is imposed) to illustrate the impact of such a campaign on the market for SSB, and explain your diagram.
ii) Compare and contrast the impact of an awareness campaign with that of a tax on SSB with respect to changes in both price and quantity, and the impact on government revenue. Will an awareness campaign have a bigger or smaller impact on consumption of SSBs by low income Mexican households compared with the economy as a whole?
iii) Discuss the impact of combining an awareness campaign and a tax on the quantity of SSB consumed. (No need to illustrate). 15 points
Question 2: A sugar tax for Australia
The 2020 Australian of the year, Dr James Muecke, has called for a sugar tax In Australia to help tackle health problems such as obesity and type 2 diabetes. (ABCa 2020).
His proposal was discussed by journalist Patricia Karvelas and Jane Martin from the Obesity Policy
Coalition (ABCb 2020), and Alexandra Beech interviewed Federal Health Minister Greg Hunt, Geoff Parker from the Australian Beverages Council and Dr Anthony Bartone from the Australian Medical Association about the proposal on ABC News (ABCc 2020).
In November 2017 journalist Andrew West interviewed Professor Bruce Neal from the George Institute for Global Health, and Dr Jenny May, a rural GP and head of rural health at the university of Newcastle about the ethics of a sugar tax (ABC 2017).
Critically analyse the arguments put forth for and against a sugar tax using these interviews and your analysis from Question 1. You may use other sources if you wish. 30 pointsQuestion 3: Unintended consequences
Often in economics it is important to recognise the costs or benefits of any unintended consequences arising from policy decisions.
Abisko is a little town north of the Arctic Circle in Sweden. It has one shop; a general supermarket, which services the large and remote area around the town. Curiously, more than half the products in the supermarket are sweets, chocolates, sweet drinks (SSB) and pallets of large packs of sugar (see photos below).
Abisko is about 1 hour and 20 minute’s drive from Narvik in Norway. Why might this fact influence the quantity of sugary products in Abisko’s supermarket? Is this an example of an unintended consequence? Discuss.
- points Presentation:
- additional points are reserved for quality of presentation, including digital presentation of diagrams; all labels and headings on diagrams; proper referencing; assignment submitted as a PDF document; and quality of writing, taking the total to 90 points.
Your score out of 90 points will be converted to a grade out of 30 marks, or 30% of your final result for the unit.
ABC 2017, ‘The ethics of a sugar tax’, Andrew West on Radio National Sunday Extra, 12 November 2017
https://www.abc.net.au/radionational/programs/sundayextra/9131202 accessed 10 March 2020
ABCa 2020, ‘Dr James Muecke to use platform to push action on diabetes’, Fran Kelly on RN Breakfast, 27 January 2020 https://www.abc.net.au/radionational/programs/breakfast/dr-jamesmuecke-to-use-platform-to-push-action-on-diabetes/11902538 accessed 10 March 2020
ABCb 2020, ‘‘Sugar is toxic’: Australian of the year calls for sugar tax’, Patricia Karvelas on RN Drive,
27 January 2020 https://www.abc.net.au/radionational/programs/drive/sugar-is-toxic:-australian-of-the-year-callsfor-sugar-tax/11904210 accessed 10 March 2020
ABCc 2020, ‘Health Minister rebuffs Australia of the Year’s sugar tax push’, Alexandra Beech on The World Today, 27 January 2020 https://www.abc.net.au/radio/programs/worldtoday/health-minister-rebuffs-australian-of-theyears-sugar-tax-push/11902914 accessed 10 March 2020
World Health Organisation (WHO), 2017, ‘Taxes on sugary drinks: Why do it?’, https://apps.who.int/iris/bitstream/handle/10665/260253/WHO-NMH-PND-16.5Rev.1eng.pdf;jsessionid=9EFE2D77DDFB3951D4357AE1D6D7A37F?sequence=1, accessed 10 March 2020