Governments like to know the price elasticity of demand because it helps them determine how changes in sales tax rates will affect
A) tax revenues.
B) government spending.
C) income.
D) profits.

Question

Quizplus · Accepted Answer

Governments are interested in the price elasticity of demand because it helps them to make predictions about how changes in tax rates will affect consumer behavior and therefore tax revenues. If a good or service is highly price elastic, a small increase in tax rate could lead to a significant decrease in consumer demand, resulting in decreased tax revenues. On the other hand, if a good or service is relatively price inelastic, a larger increase in tax rate would be required to significantly impact consumer demand and tax revenues.

Governments Like to Know the Price Elasticity of Demand Because