April Roze Nudo

CASE STUDY

Beer Sales on Downtrend Taxes blamed

1. Is the demand for beer price elastic or inelastic? Explain and illustrate.
The demand for beer price is elastic. When the beer price is lower, the demand
surely go up and more consumers will more likely buy a product if its price is lower. With
the case of San Miguel, they have increased their prices due to the ad valorem tax
imposed to their products. This results to also increasing their product’s prices in the
market.

2. What factors influence this elasticity?

The necessity of a certain product is one factor that affects price elasticity. If that
product is a basic necessity, chances are it will still have a high demand despite the high
price because people can’t live without it. However, if this product is only for leisure or only
for luxury, only people who can afford it will be able to buy it beacuse they have the ability
to spend more money. Another factor that influence price elasticity is the availalibity of
substitute or those that are cheaper but has the same quality. For example, the brand of
loaf bread. We all know that Gardenia is more expensive than other loaf breads in the
market. Of course, many people will choose to buy those brands that are cheaper,
regardless of the taste and quality, as long as it serves its purpose which is to feed their
family.

3. Is specific tax a better alternative to raise tax revenue? Explain.

Yes because it is a general rule to impose tax on these kind of products. Another
advantage of specific tax is its fixed amount regardless on the price of the product.