Question

Taxes are important for funding the activities of any government, but taxes are often employed to discourage or encourage certain types of behaviors.  State legislatures around the nation have either already imposed or are thinking about imposing a tax on drinks sweetened with sugar or high fructose corn syrup.    

Why would the state want to do this?  What costs are the production and consumption of these products imposing on people external to the market?

Illustrate what would happen to the supply and demand in the market for sugary drinks if the state imposed a 20% tax on the consumption of these products (assume the consumer would bear the burden of the tax).  Would this improve social utility?

Answer 1