Suppose that the elasticity of demand for insulin is 0.1, the elasticity of demand for oranges is 1.2, and the elasticity of supply for insulin and oranges is 0.4. If the government imposes a 10 percent tax on both insulin and oranges, the decrease in the quantity of oranges is ________ the decrease in the quantity of insulin.
A)larger than
B)smaller than
C)equal to
D)not comparable to
E)More information is needed to determine how the decrease in the quantity of oranges compares to the decrease in the quantity of insulin.

Question

Quizplus · Accepted Answer

The elasticity of demand for oranges (1.2) is higher than that for insulin (0.1), meaning consumers are more responsive to price changes for oranges. Therefore, a tax will lead to a larger decrease in the quantity demanded for oranges compared to insulin.

Suppose That the Elasticity of Demand for Insulin Is 0