Plain Sense Economics

Pizza Hut Double Deep Pizza

I love the cheese, the crust, and most of the other, assorted things that can go on a pizza. Sadly, many of those things are not good for me. This article, put out by Reuters, reports on a study measuring the impact of a tax on pizza on the number of pizza and soda calories consumed.

Over a 20-year period, a 10 percent increase in cost was linked with a 7 percent decrease in the amount of calories consumed from soda and a 12 percent decrease in calories consumed from pizza.

The team estimates that an 18 percent tax on these foods could cut daily intake by 56 calories per person, resulting in a weight loss of 5 pounds (2 kg) per person per year.

OK, budding economists. What does the first sentence sound like? If you said price elasticity, you would be right. They measured the change in demand of a product (with calories as the proxy for quantity of pizza) as a result of a change in price. Is calorie demand (at least for pizzas) price elastic or price inelastic?

Then, to add a policy bent to it, consider the idea of Pigovian taxes. If obesity is a negative externality (and it is – since obesity leads to higher health care costs and to higher insurance premiums, even among less heavy people) then one could estimate the impact of a pizza tax on consumption of those oh-so-good, but oh-so-bad for you consumer food items.