A policy that focuses on a tax increases typically are on
A)Products that have price elasticity of demand that is elastic
B)Products that have price elasticity of demand that is inelastic
C)Products that have unit price elasticity of demand
D)Products that have many substitutes

Question

Quizplus · Accepted Answer

When a policy focuses on tax increases, it is more successful in generating revenue when applied to products with inelastic demand. Inelastic demand refers to products that consumers are not very responsive to price changes. This means that even if taxes increase, consumers will still purchase these products at relatively the same quantity, allowing the government to collect more revenue. On the other hand, products with elastic demand are highly responsive to price changes and a tax increase may decrease the quantity demanded, resulting in less revenue for the government. Therefore, the best choice is B) Products that have price elasticity of demand that is inelastic.

A Policy That Focuses on a Tax Increases Typically Are