Good A has a price elasticity of demand of .27, while good B has a price elasticity of demand of 2.9. To raise the most tax revenue, the government should:
A) place a unit tax on good A.
B) place a unit tax on good B.
C) raise the price elasticity of demand for good A.
D) subsidize the production of good B.
E) cut its spending for various social programs.

Question

Quizplus · Accepted Answer

Goods with inelastic demand (like good A with a price elasticity of 0.27) will see less change in quantity demanded when taxed, leading to higher tax revenue compared to goods with elastic demand (like good B with a price elasticity of 2.9).

Good a Has a Price Elasticity of Demand of