‘The link between sugary drinks and obesity has led many governments to impose taxes on drinks with added sugar. The theory is simple: a tax should raise the price paid by consumers, which in turn
should reduce demand. Although that much is clear, theory says little about how much prices should rise in response to a tax.
In a competitive market, price should rise by no more than the tax. In monopoly markets, however, price may rise by less than the tax, by the amount of the tax, or even by more than the tax,
depending on the shape of the demand curve. Models of intermediate market structure make a similarly broad range of predictions. Since the health benefits of a soda tax depend strongly the extent
to which the tax discourages consumption, it is important to quantify how the tax affects prices.
Another important question involves substitution patterns. Reductions in soda consumption could have substantial effects on weight if consumers substitute toward low-calorie beverages such as
water. Conversely, if they substitute toward highcalorie beverages such as milk, weight may not fall much.’

a) Based on the data provided determine the market structure of the UK soft drinks sector using relevant economic theory and relevant economic diagrams.
b) Evaluate the likely impact of a sales tax on price of soft drinks based on your assessment of the market structure using economic theory/diagrams and the
information/data provided.