ACCA Applied Knowledge · Business and Technology · Political and legal factors affecting business
A government wants to discourage consumption of sugary drinks without banning them. Which fiscal policy measure is most directly aimed at this objective?
An excise duty on sugary drinks is the most direct measure. It raises the price of the product and so discourages consumption without banning it. The other options affect general business profits, investment or inputs rather than consumer demand for that specific product.
- AIntroducing an excise duty on sugary drinksCorrect
- BCutting the rate of corporate income tax
- COffering grants to companies that build new factories
- DReducing import quotas on raw materials
Explanation
An excise duty raises the price of the targeted product, which reduces demand while leaving it legal to sell. Corporate tax cuts and grants affect business profitability or investment generally, and quotas on raw materials do not target consumer demand for the drinks.
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