Question 1
Public FinanceIf the government is interested in raising the highest revenue from a tax system, then for any two commodities
- A.it is better to tax one whose demand is more elastic
- B.it is better to tax one whose demand is more inelastic
- C.revenue will be the same from both commodities
- D.it is not possible to say which will yield higher revenue
- E.government cannot make much revenue from taxing commodities.
Show the answer and explanation
Answer: B (it is better to tax one whose demand is more inelastic)
Explanation
When demand is inelastic, people keep buying almost the same amount after the tax raises the price, so the tax brings in more revenue.