Answer to Question #14076 in Microeconomics for izzaham
a stat government wants to increase the taxon cigarettes toincrease revenue.This tax would only be effective in raising in new tax revenues if the price elasticity of demand is ?
The tax will only be effective if price elasticity of demand is inelastic. Otherwise price increase that will be caused by extra tax (it will be added to regular price) will cause significant decrease in quantity bought – it won`t increase total revenue
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