The demand for insulin is quite inelastic.The demand for Pepsi is quite elastic.Suppose the elasticity of supply for insulin is the same as the elasticity of supply for Pepsi.If a $0.20 tax was imposed on each of these goods (holding everything else constant),which consumers would pay more of the tax?
A) the Pepsi consumers
B) the insulin consumers
C) There would be no difference in the amount of tax paid by the consumers.
D) More information is needed to determine which consumers pay more of the tax.
E) The premise of the question is wrong because the elasticity of demand and the incidence of a tax are not related.

Question

Quizplus · Accepted Answer

The inelastic demand for insulin implies that its consumers are willing to pay a higher price without reducing their quantity demanded significantly. Therefore, the burden of the tax will mostly fall on the insulin consumers, who will pay more of the tax. In contrast, the elastic demand for Pepsi implies that its consumers are more sensitive to price changes and may reduce their quantity demanded if the price increases. As a result, the burden of the tax will be shared between the consumers and the producers, and the Pepsi consumers may pay a smaller share of the tax than the insulin consumers.

The Demand for Insulin Is Quite Inelastic