Good A has a price elasticity of demand of 0.27,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) subsidise the production of good B.
E) cut its spending for various social programs.

Question

Quizplus · Accepted Answer

Good A has a lower price elasticity of demand (0.27), meaning its demand is inelastic. Taxing inelastic goods tends to generate more revenue because consumers are less responsive to price changes and will continue to buy the good even after a tax increases its price.

Good a Has a Price Elasticity of Demand of 0