A proposed Soda Tax--- Is it a "Lump-Sum Tax" or a "Per Unit Tax" and how does it affect the market graph in Microeconomics...Nice real-life example here

Two cities in California are deciding whether or not to tax soft drinks of a particular sort. What will be interesting to teachers and students of Microeconomics is the type of tax and how it will affect a firms cost curves (full article is pasted below the fold). 

The operative paragraph is highlighted below.  It suggests that the tax will be a "lump-sum tax" and not a "per-unit tax".

""...The Richmond and El Monte levies are structured as business license fees imposed on merchants—not as taxes on each drink purchase—meaning it would be up to the sellers to decide how to pass along the added costs...."--WSJ

The question for students---how does this affect a firms Fixed Costs (FC), Average Fixed Costs (AFC), Variable Costs (VC), Average Variable Cost (AVC), Total Costs (TC), Average Total Cost (ATC), Marginal Costs (MC)?

MOST IMPORTANTLY: What will happen to the ATC Curve (if anything)? The MC curve (if anything)? The profit-maximizing level of output (if anything)?

This is a very important concept in AP Microeconomics and is almost always tested on the AP Microeconomics test in May.  Hope it helps.

Campaign Over Soda Tax Bubbles Up

RICHMOND, Calif.—This working-class city northeast of San Francisco has emerged as the next battleground between business and health advocates over a municipal tax on sugar-sweetened drinks.
In May, Richmond's City Council agreed to put a measure on the November ballot to charge businesses a penny for every ounce of those beverages they sell in the city. If it passes, it would be the first city tax of its kind in the nation and the first to be approved by voters.

The measure has pitted a beverage association representing soft-drink makers like Coca-Cola Co. and PepsiCo Inc., as well as local merchants, against Jeff Ritterman, a 63-year-old city councilman behind the tax.

Through grass-roots campaigning at community centers and drugstores, each side is trying to sway Richmond's residents for their votes. Meanwhile, health advocates from organizations such as Yale University's Rudd Center for Food Policy & Obesity are saying the measure could help address the nation's obesity problem.

Health advocates believe a passage of the tax could set a model for other cities, even as several local soda-tax efforts in various states have foundered amid heavy lobbying. Already, 30 states, including Texas and Iowa, levy a sales tax on purchases of sweetened drinks, averaging about 5%, aimed at curbing obesity and raising money.

Richmond's measure has inspired El Monte, Calif., near Los Angeles, to draft its own soda-tax measure, which will appear on that city's November ballot, with others such as Philadelphia and California's San Mateo County saying they could follow. New York City Mayor Michael Bloomberg this year proposed restricting sales of large-size sugary drinks, though there is no tax component to his plan.

The Richmond and El Monte levies are structured as business license fees imposed on merchants—not as taxes on each drink purchase—meaning it would be up to the sellers to decide how to pass along the added costs.

"No government really wants to be the first one to tax something in a significant way," said Frank Chaloupka, director of the Health Policy Center at the University of Illinois at Chicago. He called the Richmond measure "really significant" from a political standpoint and for researchers hoping to study how consumers respond.

Mr. Ritterman, a Brooklyn native and a retired cardiologist, said he observed Richmond residents' poor health firsthand through his practice. He said he has raised $10,000 for his soda-tax campaign, which he runs out of the headquarters of the Richmond Progressive Alliance.

Mr. Ritterman said many City Council colleagues have promised to use the revenue from the levy to fight childhood obesity, although there would be no mandate to do so. "Our goal is to reverse the obesity epidemic in Richmond, statewide and countrywide," he said.

Richmond is a city of 105,000 where the biggest private employer is a Chevron Corp. refinery, which was engulfed in smoke last week after an accidental fire. Half of the city's children are obese or overweight—a high percentage that is typical of similar low-income communities, said Kelly Brownell, director of Yale's Rudd Center.

But the American Beverage Association believes the city is unfairly singling out sugary drinks, which have seen consumption decline over the past decade, according to Beverage Digest. "What happens in Richmond obviously is important to our industry," said Karen Hanretty, a spokeswoman for the drinks group, which has spent $150,000 to stop the measure from passing. The Richmond measure wouldn't apply to diet soft drinks.

In its latest dietary guidelines, the U.S. Department of Agriculture recommends people drink water instead of the sugary drinks that account for 7% of Americans' calorie intake. The Centers for Disease Control and Prevention, meantime, is running a "Rethink Your Drink" campaign with suggestions for people to drink more water.

Research by the University of Illinois's Mr. Chaloupka and his colleagues found that existing state taxes on sugary drinks haven't reduced soda consumption or obesity significantly. But those taxes are relatively small, and a heftier tax would probably have some impact, he said. Still, he said people have many other sugar sources apart from sodas—which makes a soda tax different from, say, a tobacco or alcohol tax.

On a recent day, Mr. Ritterman used a red wagon to haul around a jug of sugar the size of a small keg. "That's how much sugar you're drinking in a year," he told people in front of a drugstore as he passed out a brochure plugging the soda tax. Inside the store, a two-liter bottle of soda sold for $2.19—a price that would rise to $2.87 if the tax passed and the store pushed the added cost to soda buyers.

"This is the first I've heard of it," said Robert Alvarez, a 30-year-old Richmond resident, after the wagon caught his eye. "I think it's a good idea."

The beverage group, meanwhile, has rented a headquarters in a strip mall and is paying local residents to lobby against the tax. On a recent Saturday, the group hosted a free lunch on a recent Saturday at a Richmond community center. "This beverage tax is three things: It's unfair, it's misleading and it's misguided," Nick Panagopoulos, a consultant for the coalition, told dozens of people at the center who sipped donated cans of Fanta, Diet Pepsi and Coca-Cola.

At the meeting, Mark Wassberg, 56, who said Mr. Ritterman used to be his doctor, called the tax too costly for Richmond residents and took a pragmatic view of soda makers' involvement. "They're looking out for their interests, we're looking out for our wallets," he said.