Sugary Drink Tax and Its Impact on Supply

Governments often use taxation to influence consumer behavior and raise revenue. During President Obama’s time in office First Lady Michelle Obama introduced the health initiative Let’s Move. This program was intended to address the issue of childhood obesity and we still see its impact inside of our school cafeterias daily. Currently the Government is looking to continue the initiative and raise revenue in the process. A bill has been introduced in Congress that would place a 25% tax on all sugary beverages. This tax would be added directly to the retail prices of these drinks.

Let’s Move Sugary Drink Tax

How do you think producers will react to this new tax? For example, would they raise prices or develop a new product? Use your creative thinking and develop a solution for the producers. Explain how this solution would impact the producer's supply and their ability to reach that ultimate goal of equilibrium.