Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Consumers will significantly reduce their purchases, leading to lower tax revenue.
B
Consumers will continue buying despite price increases, resulting in higher tax revenue.
C
Tax revenue will decrease because sellers will absorb the tax burden.
D
The tax will have no effect on the quantity sold or tax revenue.
Understanding the Answer
Let's break down why this is correct
Answer
When a government imposes a tax on a good that has inelastic demand, it means that consumers will continue to buy it even if the price increases. Inelastic demand occurs when people really need the good, like medicine or basic food items, so they are less sensitive to price changes. For example, if a tax is added to a necessary medication, people will still buy it because they need it to stay healthy. As a result, the government is likely to see higher tax revenue because consumers will pay the higher price without significantly reducing their purchases. Overall, even though consumers might be unhappy about the higher prices, their consistent demand for the good ensures that the tax will generate substantial income for the government.
Detailed Explanation
When demand is inelastic, people keep buying the product even if the price goes up. Other options are incorrect because Some might think that higher prices will make people buy less; It's a common belief that sellers will just take on the tax.
Key Concepts
Elasticity of Demand
Taxation Effects
Consumer Behavior
Topic
Elasticity of Demand and Taxation
Difficulty
hard level question
Cognitive Level
understand
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