PRC-3 · Chapter 11 · Question 22 of 57
A government wants to raise massive tax revenue by placing a heavy excise tax on a specific consumer good. To ensure consumers keep buying it and paying the tax, the government should tax a good with:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Highly inelastic demand
Explanation
Goods with highly inelastic demand (like tobacco or fuel) suffer very little drop in quantity demanded when prices rise, ensuring steady and high tax revenues for the government.
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