Assuming that the demand for diamonds is more elastic than the demand for gasoline,what happens to the quantity of diamonds purchased relative to the quantity of gasoline purchased if the same percentage tax is levied on both products
A)The decrease in the quantity of diamonds is greater than the decrease in gasoline.
B)The decrease in the quantity of diamonds is less than the decrease in gasoline.
C)The increase in the quantity of diamonds is greater than the decrease in gasoline.
D)The increase in the quantity of diamonds is less than the decrease in gasoline.

Question

Quizplus · Accepted Answer

Since demand for diamonds is more elastic than the demand for gasoline, a same percentage tax on both products will cause a greater decrease in the quantity of diamonds purchased than the decrease in the quantity of gasoline purchased. This is because consumers of diamonds are more price-sensitive and responsive to changes in price than consumers of gasoline. Therefore, choice A is the best answer.

Assuming That the Demand for Diamonds Is More Elastic Than