Explain the effect of placing an indirect tax on the consumption of fast foods in the UK

Indirect taxation are taxes on expenditure and consumption. These are usually placed on demerit goods which are goods or services which are perceived to have a negative impact on society. A real world example of an indirect tax being placed on a good or service is the UK's 20% VAT.
By placing an indirect tax on fast foods the cost of production for the good will increase. This increase in cost of production will decrease supply and shift the supply curve left to supply + tax. The leftward shift in supply will increase the price of fast foods and decrease the quantity demanded. Therefore the government should be able to achieve the problem of the over consumption of high calorie food products. However, a problem facing the UK government is that fast foods are an inelastic good. This is in regard for the Price Elasticity of Demand which is the responsiveness of quantity demanded in comparison to a change in price. An inelastic good shows that the proportional percentage change in price is greater than a percentage change in quantity demanded. This problem in the short run means that there will not be a significant decrease in fast food consumption which clearly shows an issue in the implementation of the indirect tax. In order to make an indirect tax effective in the long run other supply-side policies must be implemented and as well as that some demand-side policies must also be introduced to change fast foods from being inelastic goods.

Answered by Max R. Economics tutor

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