The price elasticity of demand for plastic drinking straws is 3.5, and the price elasticity of supply of plastic drinking straws is 0.8. What can be concluded based on this information?
A) Consumers consider plastic drinking straws to be a necessity.
B) The cost of producing additional units of drinking straws is very high.
C) Consumers consider plastic drinking straws to be normal goods.
D) If a tax were placed on plastic drinking straws, sellers would pay a higher burden of a tax than the buyers would.

Question

Quizplus · Accepted Answer

The price elasticity of demand being 3.5 indicates that demand is elastic, meaning consumers are sensitive to price changes and may not consider plastic drinking straws a necessity. The price elasticity of supply being 0.8 indicates that supply is inelastic, meaning producers cannot easily adjust the quantity supplied in response to price changes. When a tax is imposed, the side of the market (demand or supply) that is less elastic (in this case, supply with an elasticity of 0.8) will bear a larger burden of the tax. Therefore, sellers would pay a higher burden of the tax than buyers.

The Price Elasticity of Demand for Plastic Drinking Straws Is