Given the rise in the number of people diagnosed with Type II diabetes, suppose the government proposes introducing a $1 tax on sugary drinks to discourage consumption of sugary drinks. Suppose a survey shows the demand for sugary drinks is perfectly elastic. Producers of sugary drinks complain and say as a result of the tax they will increase their prices by $1 per unit.

Explain and illustrate with a graph, why producers are incorrect.

Answer rating: 100% (QA)

If the demand for sugary drinks is perfectly elastic it implies that consumers are extremely responsive to changes in price In a perfectly elastic dem... View the full answer