Levying a tax on a good when demand is very inelastic will generate a large amount of tax revenue for the government.

Question

Quizplus · Accepted Answer

When demand is inelastic, it means that even if the price of the good increases (due to the tax), consumers will still buy almost the same amount of the product. This means that the government can levy a higher tax without significantly impacting the quantity demanded. Therefore, the government can generate more tax revenue without affecting the sales of the product much.

Levying a Tax on a Good When Demand Is Very