If the government imposes an excise tax on a good, it will collect the most tax revenues from it if the demand for the good is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.

Question

Quizplus · Accepted Answer

If the demand for a good is inelastic, it means that consumers are not very responsive to changes in price and will continue to buy the good even if the price increases due to the tax. Therefore, the government will be able to collect the most tax revenues from it because consumers will still be buying the same amount of the good even with the tax, resulting in a higher total revenue for the government. If the demand is elastic or unit elastic, the increase in price due to the tax will cause consumers to decrease their demand for the good, resulting in lower total revenue for the government. If the demand is perfectly elastic, even a small increase in price will cause consumers to stop buying the good altogether, resulting in zero tax revenue for the government.

If the Government Imposes an Excise Tax on a Good