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Posted: 12:00 a.m. Friday, Aug. 6, 2010

Price elasticity in the soft drink market

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Should we tax people who make poor nutritional choices? That's the question the food police are considering as we grapple with the high cost of public health.

A new study in The American Journal of Public Health found that if you increase the price of sugary soft drinks by 35 percent, the demand drops by more than 25 percent. Diet soda sales, however, increased as people switched over to that cheaper product.

soda is what economists would call price elastic. Gas, on the other hand, is price inelastic. Demand for gas only dropped by a percentage point or two when the price topped $4 at the gallon.

When Clark is at the convenience store he buys whatever soda is cheapest -- even if it's only less by a few pennies. No surprise there!

But back to the central question, which Clark is posing rhetorically here. You should expect to hear more about this issue from the food police in coming years.
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