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.

Question

Quizplus · Accepted Answer

A lower price elasticity of demand means consumers are less responsive to price changes, so a tax will not significantly reduce quantity demanded, maximizing tax revenue.

Government Wants to Maximize Its Tax Revenue and It Can