Given the rise in the number of people diagnosed with Type II diabetes, suppose the government proposes
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Question:
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.
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