This paper estimates the impact of taxes of soft drinks on consumption. Some money quotes follow.
- "We find that an increase in the beverage tax rate of 1 cent per ounce decreases household purchases of taxed beverages by 53.0 ounces per month or 12.2 percent."
- "we find that the decline was concentrated in Philadelphia, where the tax decreased purchases by 27.7 percent. We do not find impacts of the taxes in the other three cities combined."
Here are two questions.
- What is the price elasticity of demand implied by the first quote if the average price of soda is $0.10 per ounce? Price of one ounce = $0.10 => price of a 16-ounce drink = $1.60.
- Does the inability to find impacts of the taxes in the other three cities combined mean that the consumers in the other three cities disobey the law of demand?
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