Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It always increases government revenue regardless of demand elasticity.
B
It may decrease government revenue if demand is elastic and consumers significantly reduce consumption.
C
It leads to a fixed increase in government revenue without any impact from consumer behavior.
D
It has no effect on government revenue since consumers will continue purchasing the same quantity.
Understanding the Answer
Let's break down why this is correct
Answer
When the government increases per-unit taxes, it usually aims to collect more revenue from the sale of goods. However, how much extra money the government actually gets depends on how sensitive people are to price changes, which is known as the elasticity of demand. If demand is inelastic, meaning people will still buy the product even if the price goes up, the government can collect more revenue. But if demand is elastic, people might buy less or switch to cheaper alternatives when prices rise, leading to less revenue than expected. For example, if a tax on soda increases the price significantly, some people might choose to drink water instead, reducing the total tax collected.
Detailed Explanation
When demand is elastic, people buy less if prices go up. Other options are incorrect because Some think taxes always bring in more money; This suggests taxes always increase revenue by the same amount.
Key Concepts
government revenue implications
elasticity of demand
behavioral changes in consumption
Topic
Understanding Per-Unit Taxes
Difficulty
hard level question
Cognitive Level
understand
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