The price elasticity of demand for soft drinks has been estimated to be -0.55.If the government enacts a major increase in the tax on imported sugar (a major ingredient in soft drink manufacture and bottling), how will that affect total expenditures on soft drinks, all other things unchanged?
A) total expenditures will remain unchanged
B) total expenditures will fall
C) total expenditures will rise
D) people will buy Pepsi instead of Coke

Question

Quizplus · Accepted Answer

Since the price elasticity of demand for soft drinks is inelastic (-0.55), an increase in the price due to a higher tax on imported sugar will lead to a smaller percentage decrease in quantity demanded. Therefore, total expenditures on soft drinks (price times quantity) will rise.

The Price Elasticity of Demand for Soft Drinks Has Been