If a soda tax is implemented and demand for soda is price elastic, the decline in equilibrium quantity would be ________ and the increase in equilibrium price would be ________ than if demand were inelastic.
A)larger; larger
B)larger, smaller
C)smaller; larger
D)smaller; smaller

Question

Quizplus · Accepted Answer

If demand for soda is price elastic, consumers are more responsive to changes in price and will reduce their quantity demanded by a larger amount when the price increases. This means that the decline in equilibrium quantity will be larger compared to if demand were inelastic. However, since consumers are also more sensitive to price increases, producers cannot raise the price as much without experiencing a significant decline in demand. Therefore, the increase in equilibrium price will be smaller compared to if demand were inelastic.

If a Soda Tax Is Implemented and Demand for Soda