If the size of a tax increases, tax revenue
A)increases.
B)decreases.
C)remains the same.
D)may increase, decrease, or remain the same.

Question

Quizplus · Accepted Answer

The effect of a tax increase on tax revenue depends on the economic context, including the elasticity of demand and supply for the taxed good or service. If demand is highly elastic, a tax increase could lead to a significant decrease in quantity demanded, potentially reducing tax revenue. Conversely, if demand is inelastic, a tax increase might not significantly affect the quantity demanded, potentially increasing tax revenue. Therefore, tax revenue may increase, decrease, or remain the same following a tax increase.

If the Size of a Tax Increases, Tax Revenue