There is an estimated 70,000 premature deaths per year in the United Kingdom (UK) due to poor diet (Gallagher). After a successful tax on sugary drinks in Mexico, it is estimated that a tax of at least 20% would be needed to deter customers from buying drinks in the UK. If the government imposed a 20% tax on sugary drinks, it would likely decrease quantity demanded as expected, lead to a tax revenue for the government, and create positive externalities, which are benefits to a third party. Figure One shows that the price increase in litres of sugary drinks will decrease quantity demanded. Price increases from £1.85 (P1) to £2.22 (P2), and because sugary drinks are an elastic product, which is a product that’s quantity demanded is responsive to change in price, quantity demanded will decrease, as is the goal. Many people will end up buying the product(s) less, as quantity demanded and price have an inverse relationship. The decrease in quantity of sugary drinks demanded will create positive externalities as the decreased consumption of sugary drinks could lead to better diets and lower rates of obesity in the United Kingdom. …show more content…
The gap between S1 and S+Tax will get larger as the price rises because a percentage of a larger selling price equals a larger tax. For example, the proposed tax for sugary drinks is 20%. If the beginning price of the drink is £1.50, a 20% increase would raise the price to £1.80. But, a 20% increase on a drink that is £2.75 will be £3.30 after