A state government wants to increase the taxes on cigarettes to increase tax revenue. Because cigarettes are addictive, we would expect its demand to be
A) elastic. Thus, the government's cigarette-tax revenues would rise with a tax increase.
B) elastic. Thus, the government's cigarette-tax revenues would fall with a tax increase.
C) inelastic. Thus,the government's cigarette-tax revenues would fall with a tax increase.
D) inelastic. Thus,the government's cigarette-tax revenues would rise with a tax increase.

Question

Quizplus · Accepted Answer

Cigarettes are addictive, making their demand inelastic. When demand is inelastic, an increase in taxes typically leads to an increase in tax revenue because the decrease in quantity demanded is proportionally smaller than the increase in price.

A State Government Wants to Increase the Taxes on Cigarettes