Like many modern economies, the state of Vanguardia has been battling rising healthcare costs linked to dietary diseases. In 2021, the government introduced a public health levy on high-sugar energy drinks. This indirect tax charged beverage manufacturers $0.40 per litre on all drinks with sugar content exceeding 10 grams per 100ml.
While the policy aimed to reduce the consumption of unhealthy drinks, beverage corporations argued it would harm employment and lead to severe financial distress in the local retail sector. Some economists pointed out that the effectiveness of the tax in reducing sugar intake, alongside its impact on tax revenue and business profits, depends heavily on the price elasticity of demand (PED) for these drinks.
Table 1: Sales of high-sugar energy drinks and real disposable income index in Vanguardia (2020-2023)
| Year | 2020 | 2023 |
|---|---|---|
| Vanguardia High-Sugar Energy Drink Sales ($m) | 480 | 390 |
| Index of Real Average Disposable Income (2020 = 100) | 100 | 96.5 |
Using an appropriate diagram (or diagrams), evaluate the role of price elasticity of demand (PED) in determining the impact of an indirect tax such as Vanguardia's high-sugar beverage levy.