Which of the five goods, A to E, whose price elasticities of demand are shown in the choices below, is the best candidate to tax if the goal is to acquire maximum tax revenue?
A) good A, with price elasticity of 0.90
B) good B, with price elasticity of 3.40
C) good C, with price elasticity of 1.25
D) good D, with price elasticity of 0.50
E) good E, with price elasticity of 1.00

Question

Quizplus · Accepted Answer

Goods with lower price elasticities of demand (less than 1) are less sensitive to price changes, meaning consumers' quantity demanded doesn't decrease significantly with a price increase. Therefore, taxing good D with a price elasticity of 0.50 would likely generate the maximum tax revenue since demand would decrease the least in response to the tax.

Which of the Five Goods, a to E, Whose Price