a.

Approximate 35%
b. The covid 19 pandemic made people stay home and they couldn’t go out to get coffee and
donuts before work.
c. Income Inelastic. This is because although incomes decreases by a large amount (we don’t
know specifically from the article, but we surmise it was a large amount due to a massive
global pandemic) the sales of donuts only contracted by a very small amount which appears to
be less than 3%. Furthermore, the article directly states that “despite having less income,
consumers have continued to buy small luxuries such as doughnuts”
d. A demerit good is one where the consumer has a lack of understanding about the negative
effects of a good; they underestimate or simply don’t know the negative effects of consuming
a good. Doughnuts are an excellent example because they contain a particular kind of sugar
that leads to chronically elevated blood glucose levels which, in addition to obesity, can cause
numerous other negative health outcomes such as diabetes, neurodegeneration, and heart
disease. Most people just think “oh, sugar is bad because it makes you fat” but in fact they are
unaware of all health consequences of excessive sugar consumption. That’s why doughnuts
are a prime example of a demerit good.
e. (Draw a diagram, label it for “sugary foods”, show the demand curve shifting to the left, show
and label a lower eq’m price and quantity)
A consumer’s tastes and preferences are highly influenced by the media they consume which
also includes advertisement. If consumers are exposed to fewer advertisement for sugary
foods, their preference for these foods will decrease and because this is one of the
determinants of demand this should result in demand falling and the diagram outlined above.
However, we should note that this only bans online advertising; advertising on television or in
shopping malls or newspapers might still have an effect and mitigate the reduction in sugary
food consumption as consumers still get exposed to other forms of advertising. Overall, most
modern consumers, especially younger ones, consume most of their media and advertising on
the internet, so for that reason even if other forms of advertising still exist, banning it on the
internet is likely to reduce demand.
f. If the ban on advertising is successful in reducing consumption of unhealthy sugary foods
then the impact on UK consumers is likely positive with improved health, reduced obesity,
and higher life satisfaction. The impact on the UK government is a little less clear; there may
be less tax revenue from the sale of these sugary items, but there may also be less expenditure
on public health.

If the consumption of sugary foods is successfully reduced, as in part c, we can see numerous
positive health effects from moderating sugar consumption or at least having it matched with
appropriate physical activity levels. People will not only suffer less obesity, but also less
cognitive degeneration, diabetes, cardiac events, and poor mobility. All of this should lead to
an overall happier and healthier life; we recall that doughnuts are characterized as demerit
goods which does imply that if consumers were aware of the negative effects of high sugar
intake, they would voluntarily choose to consume less.

The UK government will collect less taxes; the companies selling junk food will be earning
less income which means less tax revenue. The sugary snacks themselves are certainly subject
to indirect taxes which means still less revenue. However, with the improvement in public
health from fewer people walking around with chronically elevated blood glucose levels,
there will likely be far less spending on public sector medical care which was only
necessitated due to unhealthy lifestyle choices of the population. For this reason, the UK
government is likely, but not certain, to actually have more tax receipts leftover with which to
spend on other things because of the improvement in population health.

Overall, the ban on online advertising, if it is successful in reducing consumption of sugar,

will lead to overall positive effects for both consumers and the UK government at the direct
expense of firms that were profiting in this industry.