Posted: February 10th, 2019

Economic Analysis

Economic Analysis
“She took on Colombia’s Soda Industry. Then She was Silenced. “
Our group selected an article that discusses the effects of imposing 20 per cent taxes on sugary drinks and the impacts of the policy on the beverage companies, lobbies, customers, and employees among others. The article also evaluates the battle between Dr. Ceron and the Soda companies, which were keen to silence her efforts to push for product labelling and the imposition of taxes on the sugary beverages in Colombia.
Supply and Demand
In this context, the beverage companies supplies the sugary drinks to the final consumers who demands for the drinks. The price of sodas in Colombia is cheaper than water making the sugary drinks more popular in Colombia. The supply of sodas in Colombia seems to have been high in the last few years compared to water. However, the efforts of Dr. Ceron working for a consumer protection group including the imposition of 20% taxes of the sodas and sugary drinks led to a decline in the sales of the beverages. For example, in Mexico, the imposition of soda taxes led to a 10 % reduction in the sales of the sugar-sweetened drinks (Jacobs & Ritchel, 2017). It shows that the supply of the drinks will be high than the actual demand in the market.
In most occasions, the beverages companies might be forced to reduce their prices to encourage more consumers to purchase the drinks. The beverage companies have been able to fight Dr. Ceron through legal actions to ensure that the demand for the products remains high. A decline in sales would spell difficult market position of the beverage companies. For example, the American Beverage Association argued that the imposition of the taxes would help in reducing cases of obesity. The demand for the sugary drinks might also remain high due to the culture of drinking the sugary drinks. It is critical to ensure that supply and demand of the beverage are sustainable through lobbying to counter the imposition of the soda taxes.
Producer and Consumer Surplus
In free market economies, the prices of products are determined by the market forces of demand and supply. The forces of demand and supply help to create the level of demand and supply of the products. The interference into the sugary beverages industry by the consumer protection group led by Dr. Ceron affected the inherent prices as the law discouraged people from consuming the products. The new prices were lower than the equilibrium prices. The new low prices reduces the overall consumer surplus the beverage companies are forced to pay high cost of products without any increase on their revenue generation. The sodas and sugary beverages are also sold cheaply compared to water. It shows that the consumer surplus is high because the customers had a higher potential of paying for the beverages.
The producer surplus would be only impacted by the employees ready to work under the questionable ethical environment. The law on 20% soda taxes exposed the company at risks of not paying their employees well. The employees would experience lower product surplus as the company as unable to gain more revenues. The disruption of the equilibrium level leads to deadweight loss. The beverages industry has been facing stiff competition and disruptions, which impacts on the performance of the soda firms. Based on the circumstances of legislative barriers, producer surplus and the consumer surplus were not maximized well. The consumer protection group faced stiff sanctions of questioning the new ads of the beverage firms. Therefore, proper lobbying should be done to ensure that the producer capacity improves and the creation of new brands of healthy cokes.
References
Jacobs, A. & Ritchel, M. (2017, Nov. 13). “She took on Colombia’s Soda Industry. Then She was Silenced. “The New York Times. Retrieved from https://www.nytimes.com/2017/11/13/health/colombia-soda-tax-obesity.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=photo-spot-region®ion=top-news&WT.nav=top-news&_r=0.