The government is thinking about increasing the tax on petrol to promote conservation. The tax will discourage the consumption of petrol most when the price elasticity of demand equals:

Question

Quizplus · Accepted Answer

The tax will have the greatest impact on reducing petrol consumption when the price elasticity of demand is higher. A price elasticity of demand of 2.0 means that a 1% increase in price will result in a 2% decrease in quantity demanded. This indicates a relatively responsive demand and suggests that consumers will be more likely to adjust their behavior in response to the tax, ultimately leading to greater conservation efforts.

The Government Is Thinking About Increasing the Tax on Petrol