1.2. Junk food has recently been criticized for being unhealthy and too cheap, enticing the poor to adopt unhealthy lifestyles. Suppose that the state of Oklakansas imposes a tax on junk food.

a. What needs to be true for the tax to actually deter people from eating junk food: Should junk food demand be elastic or should it be inelastic?

b. If the Oklakansa government wants to strongly discourage people from eatingjunk food, when will it need to set a higher tax rate: When junk food demand is elastic or when it is inelastic?

c. But hold on a moment: The supply side matters as well. If junk food supply is highly elastic-perhaps because it's not that hard to start elling salads with low-fat dressing instead of mayonnaise- and cheese laden burgers-does that mean that a junk food tax will have a bigger effect than if supply were inelastic? Or is it the other way around?

d. Let's combine these stories now: If a government is hoping that a small tax can actually di courage a lot of junk food pur chases, it should hope for:

I. Elastic supply and inelastic demand II . Elastic supply and elastic demand III. Inelastic supply and elastic demand IV. Inelastic supply and inelastic demand