If the demand for a product is elastic, then
A) a higher tax on the product will generate more tax revenue.
B) a higher tax on the product will generate less tax revenue.
C) total revenue will decrease as price decreases.
D) total revenue will remain constant as price increases.

Question

Quizplus · Accepted Answer

If demand for a product is elastic, then an increase in price (caused by a tax) will cause a relatively larger decrease in quantity demanded. As a result, total revenue (price times quantity demanded) will decrease. So, a higher tax on the product will generate less tax revenue.

If the Demand for a Product Is Elastic, Then