Suppose the government increases the tax on petrol in order to raise revenue.Since raising the petrol tax would increase the price of petrol, the government must be assuming that the:
A)demand for petrol is price elastic
B)demand for petrol is price inelastic
C)demand for petrol is price unit elastic
D)tax on petrol will not affect the consumption of petrol

Question

Quizplus · Accepted Answer

If the government raises the tax on petrol and the demand for petrol is price inelastic, consumers will continue to purchase petrol despite the increase in price, leading to an increase in revenue for the government. If the demand for petrol were price elastic, consumers would reduce their consumption of petrol significantly in response to the price increase, leading to a decrease in revenue for the government.

Suppose the Government Increases the Tax on Petrol in Order