In England, the tax on soft drinks was recently introduced. Australians buy 1.30 billion litres of sugar-sweetened drinks per annum (2012 figures).
Currently, the average price of these drinks is $1.6/litre. Assuming a sales tax (hypothetical scenario) of 25% on soft drinks the price will be increased to $2/litre. The price elasticity of demand for soft drinks is -0.95.
a) How will the increase in the price of soft drinks affect the demand for soft drinks? How much additional revenue will be raised by this tax?
b) Do you agree with above strategy to reduce consumption of soft drinks? Discuss Why? (Maximum 250 words)
Q2 The private competitive market is used to finance and provide most goods and services in Australia. Health care is an exception to this. Why should health care be an exception? Explain your answer. (Maximum 500 words)
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