\"A similar issue arises when the government imposes taxes on certain products,
ID: 1136800 • Letter: #
Question
"A similar issue arises when the government imposes taxes on certain products, such as on gasoline, cigarettes, and alcohol. Say that a tax on alcohol leads to a higher price at the liquor store. The higher price of alcohol causes the budget constraint to pivot left, and alcoholic beverage consumption is likely to decrease. However, people may also react to the higher price of alcoholic beverages by cutting back on other purchases. For example, they might cut back on snacks at restaurants like chicken wings and nachos. It would be unwise to assume that the liquor industry is the only one affected by the tax on alcoholic beverages."
**Read the quote above tell me one thing (ONE thing only please!) that you learned/found of interest**
***ALSO, conclude with a thought provoking question for someone to reply to.
Explanation / Answer
What I learnt from the text is that consumption depends on the elasticity of demand.If the demand is highly inelastic (like in the case of liquor because of its addiction)then people don't tend to lower the consumption even after price rise.
People lower the consumption of goods whose demand is elastic like snacks.
The text generates a question that what could the government possibly do to reduce the conaconsump of harmful goods like alcohol and drugs because raising their prices do not tend to solve the problem completely.
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