Question

Refer to the article: "Soda stream: How to tax sugary drinks." The Economist, May 23rd, 2019 By analysing shoppers'behavior, the authors of the two papers mentioned in the article find that the demand curve for sugary drink is.................

A. steep

B. vertical

C. horizontal

D. shallow (flat)

Answer 1

Ans. Option d

In the article, it is mentioned that the price elasticity of demand for the sugary drinks is sufficiently elastic. So, an increase of 1% in price will decrease demand by more than 1%. So, the demand curve is flatter.

This can be shown mathematically as,

Elasticity of demand = (1/slope of demand curve) * Price / Quantity

So, if demand is elastic i.e. greater than |1|, so, slope must be less making the curve flatter.

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