If the government is interested in generating a large revenue from placing a tax on the consumption of a particular good, it should choose a good for which
A)the demand is price elastic
B)the demand is unit elastic with respect to price
C)the supply is perfectly elastic
D)the demand is price inelastic
E)there are many good substitutes

Question

Quizplus · Accepted Answer

If the government wants to generate a large revenue from a tax on consumption, they should choose a good for which the demand is price inelastic. This means that consumers are not very sensitive to price changes and will continue to purchase the good even if the price is increased with a tax. This will result in a significant increase in tax revenue for the government.

If the Government Is Interested in Generating a Large Revenue