A bill is before your state legislature to increase the sales tax on beer.The legislator with whom you intern has argued that this tax will increase state revenues significantly,and has asked you to provide economic analysis to back him up.You will be able to support this tax as a way to increase revenue

Question

Quizplus · Accepted Answer

The intern should only support the increase in sales tax on beer if they find that the demand for beer is price inelastic. If demand for beer is price inelastic, then consumers will continue to purchase beer even with a higher sales tax, thus increasing state revenues significantly. However, if demand for beer is price elastic, consumers may reduce their consumption of beer, resulting in a decrease in state revenues.

A Bill Is Before Your State Legislature to Increase the Sales