Final answer:
When demand for soda is price elastic, the decline in equilibrium quantity with a soda tax is greater than the tax rate.
A reduction in the soda tax would lead to an increase in soda supply, decrease in equilibrium price, and increase in equilibrium quantity.
Step-by-step explanation:
When a soda tax is implemented and the demand for soda is price elastic, the decline in equilibrium quantity would be greater than the tax rate.
Price elasticity of demand means that consumers are very responsive to changes in price. Therefore, even a small increase in the price due to the soda tax can result in a substantial decrease in the quantity of soda demanded.
A reduction in the soda tax would generally increase the supply of sodas, as the tax is a cost for sellers. This reduction would likely decrease the equilibrium price and increase the equilibrium quantity of sodas.
Graphically, this is shown as a downward shift in the supply curve, which moves the equilibrium point to a lower price and higher quantity.