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?

Answer 1

For me the quantity market to junk food is inelastic in terms of price. I know people would eat less junk food when the price goes up, but the declining demand is smaller than the rising price. It is because it's difficult to find replacements for junk foods (fast foods), particularly in the US, by now. The fastest and easiest food to eat is junk food itself. The theory behind this is that even if the price rises by 1 percent, the consumer will have to buy the food, because the demand will only drop by less than 1 percent. So we can say that price doesn't impact on the market in Junk Food for amounts.

As it is inelastic then the loss of dead weight will be minimal. This symbolizes that there is low inefficiency in the industry because the quantity demand is roughly the same, not too much affected, when the price is adjusted.

I think it's a good idea to tax junk foods particularly to increase government revenue. Yet that obesity in the US would not help. Taxation is the wrong tool for fighting obesity and getting healthy our diets. The truth is that the taxes affect all customers whatever their weight status. The effect of the food taxes is uncertain and can result in product substitution that could consist of similar or higher calories.

They need to realize that obesity is caused by lifestyle, so that even people who eat vegetable on a daily basis can also be obese because they may skip workouts in a day. By these items, I don't think the taxation of food would reduce the number of obesity in the US at all.