Tuesday, August 18, 2015

Price elasticity of demand for soda in Mexico

This article in Wired reports on how an increase in the tax on sugary drink affected the consumption of such drinks.  Here are some questions.
  1. What your best estimate of the price elasticity of demand for soda in Mexico based on the report?
  2. Is the demand elastic or inelastic?
  3. If the price elasticity of demand is constant, how much would a 20% increase in price reduce consumption?
  4. Is demand by low-income consumers more or less elastic than the demand from high-income consumers?
  5. What does Kelly Brownell, a public health expert at Duke University who studies obesity, mean when he says, "A 10 percent tax is 'right at that cusp of where you might start to get changes in consumption'."
  6. Would leakage make the demand for soda in Berkeley more or less elastic than the demand in Mexico?
  7. What is your best estimate of the cross-price elasticity between the price of soda and the consumption of bottled water based on the report?

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