The local city council wants to increase the tax on alcohol sales.The intent of the tax is to help raise tax revenue to supplement funds needed for a new elementary school.This tax would only be effective if the price elasticity of demand for alcohol is
A)Elastic
B)Inelastic
C)Unit
D)Perfectly elastic

Question

Quizplus · Accepted Answer

Inelastic demand means that consumers are less sensitive to price changes, so an increase in tax (and therefore price) would not significantly reduce the quantity of alcohol sold, allowing the city council to raise more revenue.

The Local City Council Wants to Increase the Tax on Alcohol