As demand and supply become more elastic, taxes reduce market output more and raise less tax revenue.

Question

Quizplus · Accepted Answer

When demand and supply are more elastic, it means that consumers and producers are more responsive to changes in price. In this case, if taxes are imposed, both consumers and producers may react by reducing their demand and supply respectively, leading to a greater reduction in market output. As a result, the tax revenue generated may not offset the reduction in output, leading to lower tax revenue raised overall.

As Demand and Supply Become More Elastic, Taxes Reduce Market