If economists estimate the price elasticity of demand to be 0.75 for good X and 1.25 for good Y, then the government can raise the most revenue by taxing good Y.

Question

Quizplus · Accepted Answer

A price elasticity of demand less than 1 (inelastic) means consumers are less responsive to price changes, so taxing good X (0.75) would likely raise more revenue than taxing good Y (1.25), which is elastic.

If Economists Estimate the Price Elasticity of Demand to Be