If the government imposes a sin tax on alcohol and the demand for alcohol is inelastic, the tax will cause a:
A) large decrease in quantity demanded but will generate less revenue than it would if the demand were elastic.
B) large decrease in quantity demanded but will generate more revenue than it would if the demand were elastic.
C) small decrease in quantity demanded but will generate less revenue than it would if the demand were elastic.
D) small decrease in quantity demanded but will generate more revenue than it would if the demand were elastic.

Question

Quizplus · Accepted Answer

When demand is inelastic, consumers are less responsive to price changes, so a sin tax will cause only a small decrease in quantity demanded. However, because consumers continue to buy nearly the same amount despite the higher price, the tax will generate more revenue than if the demand were elastic.

If the Government Imposes a Sin Tax on Alcohol and the Demand