Answer to Question #51101 in Microeconomics for KATARINA

Question

Governments often use a sales tax to raise tax revenue, which is the tax per unit times the quantity sold.will a specific tax raise more tax revenue if the demand curve is inelastic or elastic at the original price?explain.

Answer 1

Government often uses a sales tax to raise tax revenue, which is the tax per unit times the quantity sold. A specific tax will raise more tax revenue if the demand curve is inelastic, as quantity will not change significantly, and will raise less tax revenue, if the demand curve is elastic at the original price.