If the demand for cigarettes is inelastic, a per-unit tax on cigarettes will cause the quantity demanded to:
A) fall proportionally more than the increase in price caused by the tax.
B) fall proportionally less than the increase in price caused by the tax.
C) rise proportionally more than the increase in price caused by the tax.
D) rise proportionally less than the increase in price caused by the tax.

Question

Quizplus · Accepted Answer

When demand is inelastic, consumers are less responsive to price changes, so the quantity demanded falls proportionally less than the increase in price caused by the tax.

If the Demand for Cigarettes Is Inelastic, a Per-Unit Tax