In recent years, a number of cities have enacted taxes on soda and other sweetened beverages. If the policy goal of these city governments is to raise tax revenue to fund important initiatives such as education programs, this would be most successful if the price elasticity of demand for these sweetened beverages is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.

Question

Quizplus · Accepted Answer

If the price elasticity of demand for sweetened beverages is inelastic, it means that consumers are not very responsive to price changes. Therefore, even if the price increases due to the tax, the decrease in quantity demanded will be relatively small, allowing the government to raise significant revenue.

In Recent Years, a Number of Cities Have Enacted Taxes