Exhibit 19-7

-Refer to Exhibit 19-7. If the government wants to impose a per-unit tax in order to raise revenues, which of the depicted markets should it choose in order to maximize tax revenues?
A)(1)
B)(2)
C)(3)
D)(4)

Question

Exhibit 19-7
​
 
-Refer to Exhibit 19-7. If the government wants to impose a per-unit tax in order to raise revenues, which of the depicted markets should it choose in order to maximize tax revenues?
A)(1) 
B)(2) 
C)(3) 
D)(4)

Quizplus · Accepted Answer

Market (1) has the broadest base and the least elastic demand, which means consumers are less responsive to price changes. This makes it the best option for maximizing tax revenue, as the quantity demanded will not decrease significantly with the imposition of a tax, ensuring a steady revenue stream.

Exhibit 19-7 ​

Exhibit 19-7