HookThe Sugar Tax did not work the way you think
The 2018 Soft Drinks Industry Levy added 18p per litre to drinks with 5–8g sugar per 100ml, and 24p to anything above 8g. In the first two years, total sugar in soft drinks fell roughly 30% — but consumption of soft drinks only fell about 10%. The gap is the answer to a question students rarely think to ask: who responded to the price signal?
Most of the heavy lifting came from producers, not consumers. Coca-Cola reformulated Fanta and Sprite to land just under the 5g threshold. Britvic reformulated Robinsons. The price signal hit firms with elastic supply and high reformulation budgets, and they moved. Consumer PED for sugary drinks is real but moderate (around 0.6–0.8). PES for "reformulate to dodge the tax", on the other hand, turned out to be very large indeed.
ModelThe four elasticities
PED (price elasticity of demand) = %ΔQd / %ΔP. Below 1 = inelastic (necessities, addictions). Above 1 = elastic (luxuries, things with close substitutes). At 1 = unit elastic (total revenue invariant to price). YED (income elasticity) splits normal goods (positive YED) from inferior goods (negative YED), and within normal, necessities (0–1) from luxuries (>1). XED measures cross-price response: substitutes have positive XED, complements negative. PES is the supply mirror of PED.
Key intuitions to quote, not just know: insulin PED ≈ 0.2 (you take it whatever the price); cruise holidays PED ≈ 2.5 (you skip them when prices rise). Tobacco PED ≈ 0.4 in the short run, ≈ 0.8 in the long run — addictive in the SR, substitutable in the LR.
ExamWhat examiners want
Always quote a number. "PED is inelastic" gets a partial mark; "PED ≈ 0.4 (inelastic, in the short run)" gets a full one. The marker is looking for evidence that you understand the spectrum, not the binary.
Also: don't ignore PES. The Sugar Tax case is the textbook example of an elasticity question that's actually about supply, and weak essays only talk about demand. The strong evaluation move is to note that policy outcomes depend on elasticities on both sides.