How is elasticity related to the revenue from a sales tax?
A. If demand is inelastic, then raising tax rates will decrease tax revenue paid by consumers. This principle works similarly with supply. With elastic supply and demand, increasing taxes will increase quantity supplied and quantity demanded enough to cause an increase in tax revenue.
B. If demand is inelastic, then raising tax rates will decrease tax revenue paid by consumers. The elasticity of supply has no effect on taxes because taxes only matter to consumers (who have to pay the taxes).
C. If demand is inelastic, then raising tax rates will increase tax revenue paid by consumers. This principle works similarly with supply. With elastic supply and demand, increasing taxes will decrease quantity supplied and quantity demanded enough to cause a decrease in tax revenue.
D. If demand is inelastic, then raising tax rates will increase tax revenue paid by consumers. The elasticity of supply has no effect on taxes because taxes only matter to consumers (who have to pay the taxes).
References
Answer: C. If demand is inelastic, then raising tax rates will increase tax revenue paid by consumers. This principle works similarly with supply. With elastic supply and demand, increasing taxes will decrease quantity supplied and quantity demanded enough to cause a decrease in tax revenue.
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