Suppose the government increases the tax on gasoline in order to raise revenue.Since raising the gasoline tax would increase the price of gasoline,what must the government be assuming
A)The demand for gasoline is price elastic.
B)The demand for gasoline is price inelastic.
C)The demand for gasoline is price unit elastic.
D)The demand for gasoline is price perfect elastic.

Question

Quizplus · Accepted Answer

The government must be assuming that the demand for gasoline is price inelastic since they expect to raise revenue from the tax increase despite the potential decrease in quantity demanded due to the higher price. If the demand were price elastic, the tax increase would likely result in a larger decrease in quantity demanded, causing a decrease rather than increase in revenue.

Suppose the Government Increases the Tax on Gasoline in Order