A tax on diamonds will raise only a small amount of revenue for the government when the demand for diamonds is
A) equal to the supply of diamonds
B) elastic
C) inelastic
D) very high

Question

Quizplus · Accepted Answer

When demand for a product is elastic, consumers are very responsive to price changes. A tax on diamonds, which increases the price, would significantly reduce the quantity demanded, leading to a smaller increase in revenue than if demand were inelastic.

A Tax on Diamonds Will Raise Only a Small Amount