Suppose the elasticity of demand for takeaway food is 3.00 and the elasticity of supply is 1.20. If the government imposes a sales tax on takeaway food to promote healthy eating, which of the following occurs? i. Less takeaway food is purchased by buyers.
Ii) Less takeaway food is produced by sellers.
Iii) The government receives the excess burden as revenue.
Iv) Both the consumer surplus and the producer surplus decrease.

Question

Quizplus · Accepted Answer

If there is a sales tax imposed, the price of takeaway food will increase for the consumer, which will ultimately lead to a decrease in the quantity demanded of takeaway food (i). As a result, the suppliers will produce less of the product (ii). The government will receive the tax revenue generated from the sales tax imposed (iii). The increase in price will lead to a decrease in both consumer surplus and producer surplus, leading to a decrease in overall surplus (iv). Therefore, options i, ii, and iv are correct. Option iii is also correct. So, option D is the best choice.

Suppose the Elasticity of Demand for Takeaway Food Is 3