Obesity increases the risk for a number of chronic diseases, such as high blood pressure and heart diseases. In Hong Kong, the proportion of secondary school students considered overweight or obese increased from 18.7% in the 2010/11 school year to 19.4% in 2014/15. Having about one in five teenagers deemed overweight or obese is worrying and requires further action.
Since there is considerable amount of trans fats in French fries that a high consumption of it would increase the risk of chronic diseases, such as obesity, in order to promote the health of teenagers and general public, the Hong Kong Government considers levying a per-unit tax on all kinds of French fries.
a.
If the per-unit tax were to levy on French fries, how would it affect the price paid by buyers (PB), the price received by sellers (PS) and the quantity consumed of French fries? Explain your answer with a supply-and-demand diagram.
b.
Suppose the demand for French fires were price-elastic, how would the imposition of the per-unit tax affect the expenditure of buyers on French fires? Explain.
c.
What is efficiency? How would the efficiency in the market of French fries be affected if the per-unit tax were imposed? Would the tax lead to a deadweight loss.
Figure 2The vertical distance between points A and B represents a tax in the market.
19. Refer to Figure 2. The loss of producer surplus as a result of the tax is
a. $1.
b. $2.
c. $3.
d. $4.
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