Question

Taxes on goods with __________ demand curves will tend to raise more tax revenue for the government than taxes on goods with __________ demand curves. elastic; unit elastic elastic; inelastic inelastic; elastic unit elastic; inelastic

Answer 1

Inelastic, elastic

Step-by-step explanation:

Taxes on good with inelastic demand will raise more tax revenue. When a tax is imposed it increases price paid by the consumers so quantity demanded decreases.

In case the demand is elastic, an increase in the price causes the quantity demanded to decrease by a great extent. So the tax revenue does not increase much.

When the demand is inelastic an increase in price will cause the quantity demanded to decrease by a small extent.

So the tax revenue will be higher with inelastic demand.