The government unit that wants to achieve "revenue enhancement" will find it considerably more favorable to enact an excise tax on goods whose demand is
A)highly elastic.
B)relatively elastic.
C)highly inelastic.
D)unitary elastic.

Question

Quizplus · Accepted Answer

The government unit that wants to achieve "revenue enhancement" should enact an excise tax on goods whose demand is highly inelastic. The reason behind this is that highly inelastic demand means consumers are less price-sensitive and will still purchase the good even with a tax increase, leading to an increase in government revenue. Goods with highly elastic demand mean consumers are highly price-sensitive and will reduce their purchases significantly if a tax is imposed, resulting in a reduction in government revenue. Therefore, highly inelastic demand goods are favorable for revenue enhancement through excise tax.

The Government Unit That Wants to Achieve "Revenue Enhancement" Will