The government wants to increase its tax revenue and plans to implement an additional sales tax. The government will raise more tax revenue if it taxes a good with an _______ rather than a good with an _______ .

Question

Quizplus · Accepted Answer

The government will raise more tax revenue if it taxes a good with an inelastic demand rather than a good with an elastic demand. This is because when demand is inelastic, consumers are less sensitive to price changes, and thus, the quantity demanded decreases less when the tax is imposed, leading to higher tax revenue.

The Government Wants to Increase Its Tax Revenue and Plans