Question

Recently there has been discussion in the news about taxing junk food (soft drinks, for example) in an effort to reduce the incidence of obesity in the U.S. Do you think the demand for junk food is elastic or inelastic with respect to price.

Based on your knowledge of the price elasticity of demand, do you think the deadweight loss of a soda/junk-food tax would be relatively large or relatively small? Why? Do you think taxing junk food would be a good idea? Based on your analysis, would it really help reduce the number of obese people in the United States? Explain.

Answer 1

Demand for junk food believed to be inelastic because these days junk food eating has become quite popular,especially in the younger generation on availability, convenience and relatively easy on price. They have become almost addictive to junk food and consumption would remain at the level used to even if prices go higher.

I would agree with a tax on junk food. Personally I think we should levy a very high tax on all of those, similar to the taxes paid on liquor and tobacco. Thoung taxing specifically on junk food seems to be injustice to market and create short term imbalance to market. But the long term benefits are – people will encourage eating healthy fresh food and discouraged to junk food over a time. When healthy food will be available at less cost than junk food, it is obvious that people will go for healthy. But along with taxing on junk food, government should create awarness people the ill-effects of junk foods. Because only taxing more will just increase the price of the junk food and those who are addictive to junk food any how manage to eat these ill-foods. So awarness is also important along with taxing junk food.