Refer to the graph above. Critics of supply-side economics would argue that tax rates are currently between:
A) b and d and that a decrease in tax rates will decrease tax revenues
B) 0 and b and that a decrease in tax rates will decrease tax revenues
C) 0 and b and that a decrease in tax rates will increase tax revenues
D) b and d and that a decrease in tax rates will increase tax revenues

Question

Refer to the graph above. Critics of supply-side economics would argue that tax rates are currently between:
A) b and d and that a decrease in tax rates will decrease tax revenues 
B) 0 and b and that a decrease in tax rates will decrease tax revenues 
C) 0 and b and that a decrease in tax rates will increase tax revenues 
D) b and d and that a decrease in tax rates will increase tax revenues

Quizplus · Accepted Answer

Critics of supply-side economics argue that tax rates are currently between 0 and b, where the curve is inelastic, meaning that a decrease in tax rates will result in a proportional decrease in tax revenues. Therefore, they would caution against decreasing tax rates in this range as it could lead to a drop in government revenue.

Refer to the Graph Above