If the demand for a product is elastic, then
A)a higher tax on the product will generate more tax revenue.
B)a higher tax on the product will generate less tax revenue.
C)total revenue will decrease as price decreases.
D)total revenue will remain constant as price increases.

Question

Quizplus · Accepted Answer

When demand is elastic, a higher tax on the product will lead to a significant decrease in quantity demanded, which can result in less tax revenue because the decrease in quantity sold more than offsets the increase in tax per unit.

If the Demand for a Product Is Elastic, Then