Question

The government unit that wants to achieve "revenue enhancement" will find it considerably more favorable to enact an excise tax on products whose demand is:_______.a. unitary elastic. b. relatively elastic. c. highly inelastic. d. highly elastic.

Answer 1

Answer:

C. highly inelastic

Explanation:

An excise tax on a product will increase its price from the equilibrium point, to a higher point set by the government.

If the government was to enhance its revenue by this means, it should enact the excise tax on products that are highly inelastic.

This is because a highly inelastic product is one whose quantity demanded does not fall considerably even if the price rises a lot.

This means that even if the product is more expensive after the excise tax, consumer will continue to buy it, increasing government revenue in this way.