In 1991, Congress levied a 10 percent luxury tax on yachts over $100,000. The tax brought in far less than was anticipated, they must have passed the legislation thinking the demand for yachts was more ___ than it actually was.

Question

Quizplus · Accepted Answer

When demand is inelastic, the quantity demanded changes relatively less than the price. In such cases, imposing taxes result in higher revenue for the government. However, in this scenario, the tax on luxury yachts did not generate the expected revenue; this suggests that the demand for yachts was more inelastic than anticipated. Therefore, the best choice is B, inelastic.

In 1991, Congress Levied a 10 Percent Luxury Tax on Yachts