Answer :
Junk food has been criticized for being too cheap, enticing the poor to adopt unhealthful lifestyles. Suppose that the state of oklahansas imposes a tax on junk food. For the tax to deter most people from eating junk food, the demand should be elastic.
What is elastic demand?
Elastic demand is demand in which the quantity demanded varies greatly with changes in price. Inelastic demand is demand for which the change in quantity demanded is small due to changes in price. The formula for calculating elasticity of demand is:
(Q1 – Q2) / (Q1 + Q2).
Demand elasticity is a measure of how demand responds to changes in price. This is normalized. That is, each price and quantity does not matter, everything is treated as a percentage change.
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To deter consumption of junk food through taxation, demand for junk food must be elastic. This means consumers would significantly reduce consumption in response to price increases from the tax. The example of inelastic demand for cigarettes illustrates that when demand is inelastic, price increases do not greatly reduce consumption.
To answer the question about the impact of imposing taxes on junk food, and whether it would deter most people from eating such food, we must understand the concept of elasticity of demand. If the demand for junk food is elastic, it means consumers are sensitive to price changes. Thus, when the price increases due to a tax, consumers are likely to significantly reduce their consumption of junk food. On the contrary, if the demand is inelastic, consumers are not very responsive to price changes, and consumption will not significantly decrease despite the higher prices from taxes.
Using cigarettes as an example, it's clear that they have an inelastic demand among regular smokers. Economic research has indicated that a 10% increase in cigarette prices results in only about a 3% reduction in quantity smoked, making the demand elasticity for cigarettes about 0.3. Therefore, a tax increase mainly results in higher prices rather than a substantial reduction in smoking. This is because the supply curve shifts, but the quantity demanded remains relatively constant due to the inelasticity of demand.
Hence, for a tax on junk food to effectively deter consumption, the demand for junk food must be elastic. An elastic demand will ensure that the increase in price due to taxation leads to a substantial decrease in the quantity of junk food consumed, thereby achieving the desired health goals of the tax.