Think Like An Economist cover image

S E12: When Governments Intervene - Taxes, Price & Quantity Regulations

Think Like An Economist

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Coke - What Happens if You Don't Pass on the Tax?

The law of demand says that we tend to buy less of something when the price is higher. Buyers will respond a lot to a small change in price, whereas if it's in stic, they won't respond much at all. So i remember, if there's a lot of substitutes for sweetened beverages, like water or coffee, people are going to buy less soda. Now put yourself in the shoes of sellers. You tried passing a tax on to your customers, but they ended up buying a lot less soda. But if consumers are seeing same prices, they haven't changed how much they want to buy. And this is where market forces take over. Coke still wants to supply

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