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A-Level Economics · Indirect tax diagram question

EVALUATION: Demand for sugar is price INELASTIC. What does this mean for a sugar tax?

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The answer

Quantity falls proportionately LESS than price rises, so overconsumption largely persists. Necessity + addiction + few substitutes = inelastic demand: consumers absorb the price rise, quantity barely moves, the market failure survives the tax. Inelastic demand: the price rise is passed to consumers who keep buying — quantity falls proportionately less, so over-consumption persists. Same logic for alcohol, tobacco and fossil fuels.

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This is one of 9 questions on the indirect tax diagram — every corner lettered, every wrong answer diagnosed.

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