A soda tax is more effective at reducing soda consumption when demand is price ________ and is more effective at raising tax revenue when demand is price ________.
A)elastic; elastic
B)elastic; inelastic
C)inelastic; elastic
D)inelastic; inelastic

Question

Quizplus · Accepted Answer

A soda tax is more effective at reducing soda consumption when demand is price elastic, meaning that consumers are sensitive to changes in price and will decrease their consumption in response to a price increase. On the other hand, a soda tax is more effective at raising tax revenue when demand is price inelastic, meaning that consumers will continue to purchase soda even with a price increase. Therefore, option B is the correct answer as a tax on soda will work best in reducing consumption of soda and raising tax revenue when demand for soda is elastic.

A Soda Tax Is More Effective at Reducing Soda Consumption