Governments can use price elasticity of demand to estimate how changes in excise tax rates will affect:
A) income.
B) prices.
C) tax revenues.
D) government spending.
E) profits.

Question

Quizplus · Accepted Answer

Price elasticity of demand is a measure of the responsiveness of demand for a product to changes in its price. By estimating this measure, governments can determine how changes in excise tax rates will affect consumer behavior and ultimately tax revenues. For example, if a government increases the excise tax on cigarettes, the price of cigarettes will increase, and consumers may reduce their demand. By estimating the price elasticity of demand, the government can predict how much cigarette sales will reduce, and thus estimate the effect on tax revenues.

Governments Can Use Price Elasticity of Demand to Estimate How