Government wants to maximize its tax revenue and it can only place a $2 per-unit tax on one of two goods. It should place the tax (on the production) of the good whose demand curve has the
A)higher price elasticity of demand.
B)lower price elasticity of demand.
C)greater length.
D)shorter length.
E)a or c

Question

Quizplus · Accepted Answer

A government aiming to maximize tax revenue should place the tax on the good with a lower price elasticity of demand. This is because a lower price elasticity indicates that consumers are less sensitive to price changes, meaning that a tax-induced price increase will result in a smaller decrease in quantity demanded, thereby preserving more of the tax revenue.

Government Wants to Maximize Its Tax Revenue and It Can