A tax targeted to reduce consumption of a good by a specific quantity will raise the most revenue when:
A) both supply and demand are inelastic.
B) supply is inelastic and demand is elastic.
C) supply is elastic and demand is inelastic.
D) both supply and demand are elastic.

Question

Quizplus · Accepted Answer

When both supply and demand are inelastic, consumers and producers are less responsive to price changes, meaning the quantity sold does not decrease significantly. This results in higher tax revenue as the quantity remains relatively stable despite the tax.

A Tax Targeted to Reduce Consumption of a Good by a Specific