Read the two articles on taxing of soda and sugared beverages: “Cato Soda Tax” and “Ounce of Prevention” under readings on Blackboard. Answer the following questions about those readings
- What is the major argument of in favor of taxing soda? Use economic terminology.
- Taxing of soda is presumed to increase tax revenue. Does the way in which this increased revenue is spent influence policy outcomes? Explain why.
- What are the major arguments against taxing soda according to the critics of the proposed tax?
- A larger percentage of African-Americans are obese.
- Given the information provided in the articles about soda consumption among African-American, how might a soda tax impact obesity among this population? (2 points)
- What other suggestions do you have to address obesity among African-American population using a similar tax?
- A recent study (hypothetical) suggests that the top two U.S. drug companies involved in research and development to produce anti-viral drugs (such drugs to combat flu, Ebola, HIV, etc.) have a return on investment of 40% for their marketing and advertising efforts for existing drugs. In other words, for every dollar spent on marketing existing drugs, the company receives $1.40 in earnings resulting in a 40-cent profit. These same two companies only have a 25% return on investment for research and development activities related to new drug development. Company executives are considering a major shift in resources away from drug development to increase advertising and marketing of existing drugs. Doing so will yield increased profitability for shareholders.
- What might justify a government response to the companies’ plans to shift away from R&D? Be sure to utilize economic terminology in your answer
- What policy solution would you recommend? Explain how it would address the economic problem you identified in part a using economic terminology
- Consider the following scenarios related to asymmetric information:
- Your sister did not have life insurance and recently discovered she has a terminal illness. She has decided to purchase a $2 million life insurance policy.
- What type of asymmetric information problem is this?
- Your sister did not have life insurance and recently discovered she has a terminal illness. She has decided to purchase a $2 million life insurance policy.
- Describe a way the private sector can address this information asymmetry?
- You recently purchased a new iPhone along with an insurance plan against theft, loss, or damage. Your friend asked why you didn’t purchase a protective case for your phone. You replied, “I’m not worried. I have insurance!”
- What type of asymmetric information problem is this?
- Describe a way the private sector can address this information asymmetry?
