Understanding the Economics of Insulin

The video explores the economic concept of tax burden, focusing on insulin's unique demand characteristics. Insulin has a perfectly inelastic demand curve within a reasonable price range, meaning diabetics will purchase the same quantity regardless of price changes. The video discusses the implications of this inelasticity on consumer and producer surplus, and the effects of imposing a tax on insulin. It highlights that the tax burden falls entirely on consumers, as the quantity demanded remains unchanged, resulting in no deadweight loss.

Why is insulin considered to have an inelastic demand?

• Because diabetics need it to survive regardless of price

• Because its price is always low

• Because it is heavily taxed

• Because it is a luxury good

What does a perfectly inelastic demand curve look like?

• Horizontal

• Curved

• Vertical

• Diagonal

What is the equilibrium price of insulin in the discussed scenario?

• $50

• $75

• $100

• $150

How is consumer surplus defined in the context of insulin?

• The cost of producing insulin

• The tax revenue from insulin

• The total revenue from insulin sales

• The difference between what consumers are willing to pay and what they actually pay

What happens to the equilibrium price when a $10 tax is imposed on insulin?

• It decreases by $10

• It remains the same

• It increases by $10

• It doubles

Who bears the burden of the tax on insulin?

• The government

• The consumers

• The retailers

• The producers

What is the impact of the tax on the quantity of insulin demanded?

• It decreases

• It increases

• It fluctuates

• It remains unchanged

Why is there no deadweight loss when insulin is taxed?

• Because the government subsidizes insulin

• Because the tax is very low

• Because the demand is perfectly inelastic

• Because the supply is perfectly elastic

What happens to consumer surplus when insulin is taxed?

• It decreases

• It increases

• It remains the same

• It becomes negative

What is the total tax revenue generated from the insulin tax?

• $40,000

• $10,000

• $20,000

• $30,000