Suppose the federal excise tax rate on gasoline is increased by 50 percent. Which of the following is the most likely impact on the tax revenue derived from the federal gas tax?
A) Tax revenues will increase by less than 50 percent.
B) Tax revenues will increase by 50 percent.
C) Tax revenues will increase by more than 50 percent.
D) The revenue from the gasoline tax will go to zero.

Question

Quizplus · Accepted Answer

An increase in the tax rate does not directly translate to an equivalent increase in tax revenue due to potential decreases in quantity demanded as prices rise.

Suppose the Federal Excise Tax Rate on Gasoline Is Increased