If demand and supply are both very inelastic,a decrease in the rate of an excise tax will likely:

Question

Quizplus · Accepted Answer

If both demand and supply are highly inelastic, the quantity demanded and supplied will only slightly change in response to a decrease in the rate of an excise tax. So, even though the per unit tax is reduced, the change in quantity does not compensate for the reduced tax rate, leading to a decrease in government revenue.

If Demand and Supply Are Both Very Inelastic,a Decrease in the Rate