Foundation Programme Economics Module: Summative Assignment 2

Background

‘The link between sugary drinks and obesity has led many governments to impose taxes on drinks with added sugar. The theory is simple: a tax should raise the price paid by consumers, which in turn should reduce demand. Although that much is clear, theory says little about how much prices should rise in response to a tax.

In a competitive market, price should rise by no more than the tax.  In monopoly markets, however, price may rise by less than the tax, by the amount of the tax, or even by more than the tax, depending on the shape of the demand curve.  Models of intermediate market structure make a similarly broad range of predictions. Since the health benefits of a soda tax depend strongly the extent to which the tax discourages consumption, it is important to quantify how the tax affects prices.

Another important question involves substitution patterns.  Reductions in soda consumption could have substantial effects on weight if consumers substitute toward low-calorie beverages such as water.  Conversely, if they substitute toward highcalorie beverages such as milk, weight may not fall much.’

Grogger, J. (2015), Soda Taxes and the Prices of Sodas and other drinks: Evidence from Mexico, Working Paper 21197,  http://www.nber.org/papers/w21197

Assignment

a)  Based on the data provided determine the market structure of the UK soft drinks sector using relevant economic theory and relevant economic diagrams.

b)  Evaluate the likely impact of a sales tax on price of soft drinks based on your assessment of the market structure using economic theory/diagrams and the information/data provided.

Assignment instructions

·    A first draft must be submitted by the 20th January 2017

Assignments MUST be submitted electronically through KEATS by 14:00 pm on

MONDAY 13th February 2017.

·    Assignments are marked anonymously, and so you will need to submit using your student number. This is the number on your student card. This number should be clearly visible on the first page of the assignment.   Please do not include your name on any part of the assignment.

Assignments must be submitted on time. Late assignments should be submitted through KEATS. Please do not submit your work via email.

Marks for assignments submitted within 24 hours of the deadline will be capped at

40%; assignments submitted after that time will receive a mark of zero.

The word count for this assignment is 1,200 words. Essays that are more than 5% over this figure will be penalised (see the course handbook for details).  There is no penalty for under-length assignments; however, assignments that are more than 5% below the word count are unlikely to give adequate answers to the questions set.

If you should require an extension to the deadline, you must complete an Extension Request Form (this is available at https://internal.kcl.ac.uk/student/study/elc/elcstudents- only/MitigatingCircumstances.aspx).

·     All assignments should be word processed using a legible font and in size 12. They should also be double-spaced (or 1.5) and on A4 paper.  All pages should be numbered and all pages should have your student number on them.

A reference list of all the references you have used in your assignment should be included at the end of your assignment. Use the Harvard Referencing System should be used for in-text citations and the listing of sources in the bibliography.

If you do not understand any of the above, please ask your tutor, who will be able to help you.

If you have any problems submitting your work via KEATS please contact the

Programmes Administration Office –  elc@kcl.ac.uk

Guidance:

It is important that you consider the following in writing your essay:

a)   Structure  - Your essay should have a coherent, consistent and logical structure with headings for each section. It should start with an ‘Introduction’ in which you discuss the background to the topic you will be writing about. In the ‘Introduction’ you should also state your aims and objectives and what you expected findings will be. The essay should end with a conclusion in which you state your findings and then discuss whether you think these are correct and if not, why not?

b)   Use of relevant economic theory – Your essay should use relevant economic theory which has been taught on the course.

c)  Analysis  – Your essay should be analytical and not descriptive. You should use the data provided in order to support your answer.

d)   Referencing – Your essay should be well referenced using the Harvard Referencing System.

e)   Sources – You should use a minimum of four of the sources provided and do some research to find at least two other ACADEMIC sources yourself.

f)    Diagrams and Labelling  – All diagrams and tables should be clearly labelled with the sources of the diagrams and tables clearly stated.

References

BSDA (2015), Changing Tastes: The UK Soft Drinks Annual Report 2015, http://www.britishsoftdrinks.com/write/MediaUploads/Publications/BSDA_Annual_Re

port_2015.pdf

Doherty, R. (2015), Shaken Up: Health Concerns takes the fizz out of demand for industry products, IBISWorld Industry Report C11.071

Fletcher, J., Frisvold, D., and Tefft, N. (2010), Can Soft Drink Taxes Reduce

Population Weight, Contemporary Economic Policy, Vol.28, No.1, pp. 23-35.

Grogger, J. (2015), Soda Taxes and the Prices of Sodas and other drinks: Evidence from Mexico, NBER Working Paper Series, Working Paper 21197.

Snowdon, C. (2016), Sugar Taxes: A Briefing, Institute of Economic Affairs, https://iea.org.uk/publications/research/sugar-taxes-a-briefing

Oxford Economics (2014), Refreshing the Nation Our Contribution to the UK Economy, British Soft Drinks Association, http://www.britishsoftdrinks.com/Refreshing-the-Nation-Our-contribution-to-the-

UKeconomy

Tedstone, A., Targett, V., Allen, R. (2015), Sugar Reduction: The Evidence for Action, Public Health England, https://www.gov.uk/government/publications/sugarreduction-from-evidence-into- action

Tiffin, R., Kehlbacher, A., and Salois, M. (2015), The Effects of a Soft Drinks Tax in the UK, Health Economics, 24, pp. 583-600

Data

Table 1: UK Calorie Split for all soft drinks 2014

Source: www.britishsoftdrinks.com/Soft-Drinks

Table 2: UK Soft Drinks Sector 2014

Source: www.britishsoftdrinks.com/Soft-Drinks

Table 3: UK Soft Drinks Sector – Barriers to Entry Checklist

Source: Adapted from  www.IBISWorld.co.uk

Table 4: UK Soft Drinks Sector – Market Share by Firm

Source: Adapted from  www.IBISWorld.co.uk