Governments often use a sales tax to raise tax rev - enue, which is the tax per unit times the quantity sold. All else the same, will a specific tax raise more tax revenue if the demand curve is inelastic or elas - tic at the original price?

Question

Alannah Allen

Business

13 November, 06:19

Governments often use a sales tax to raise tax rev - enue, which is the tax per unit times the quantity sold. All else the same, will a specific tax raise more tax revenue if the demand curve is inelastic or elas - tic at the original price?

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Answers (1)

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Roxie · Answer 1

Yas tax revenue depend on elasticity of demand curve.

Explanation:

first of all we need to understand that inelastic demand curve means in which increase or decreases of price don't change consumption pattern of consumer, however elastic demand meant in which increases or decreases price effect consumption behavior, this depend whether commodity or good is necessity or luxurious good. so if demand is inelastic government can impose and earn more revenue from that good on other hand to impose tax on elastic commodities government cannot earn profit and there is less margin.