The more elastic the supply and demand curves in a market,the more taxes in that market distort behaviour,and the more likely it is that a tax cut will raise tax revenue.

Question

Quizplus · Accepted Answer

If the supply and demand curves are more elastic, it means that people are more responsive to changes in price. Therefore, if a tax is imposed, people will be more likely to change their behavior to avoid the tax, such as buying a substitute product or reducing their consumption. This can lead to a decrease in tax revenue. On the other hand, if the tax is cut, people may be more likely to increase their consumption or purchase of the product, resulting in an increase in tax revenue. This effect is known as the Laffer Curve.

The More Elastic the Supply and Demand Curves in a Market,the