Consider a situation where the U.S.Congress wants to place a special tax on private airplanes to increase tax revenue.This tax would be most effective in raising new tax revenues if the price elasticity of:
A) supply is elastic.
B) supply is inelastic.
C) demand is elastic.
D) demand is inelastic.

Question

Quizplus · Accepted Answer

A tax on private airplanes would affect the demand for them rather than the supply. If the demand is inelastic, meaning that the quantity demanded does not vary significantly with changes in price, the tax would not significantly reduce the number of private airplanes being purchased, and more tax revenue would be generated. Hence, the best choice is D, i.e., demand is inelastic.

Consider a Situation Where the U