Suppose demand has price elasticity of 1 everywhere and the industry is perfectly competitive with identical firms.In the long run, tax revenue increases as tax rates increase.

Question

Quizplus · Accepted Answer

In a perfectly competitive industry with identical firms and constant price elasticity of demand, the long-run equilibrium price and quantity are independent of the tax rate. Therefore, tax revenue increases as tax rates increase.

Suppose Demand Has Price Elasticity of 1 Everywhere and the Industry