A policy maker has argued for higher taxes on gasoline to reduce the negative externalities associated with driving. This policy will lead to a relatively ________ reduction in driving if demand is ________.
A)small; perfectly elastic
B)large; perfectly inelastic
C)small; relatively inelastic
D)large; relatively inelastic

Question

Quizplus · Accepted Answer

If demand is inelastic, a tax will increase price but will not change the quantity demanded by a large amount.

A Policy Maker Has Argued for Higher Taxes on Gasoline