Assertion (A): A government that wants more tax revenue from a sales tax should tax goods with inelastic demand.
Reason (R): When demand is inelastic, quantity bought falls only a little when the price rises.

Both A and R are true, and R is the correct explanation of A.Correct answerYour answerBoth A and R are true, but R is not the correct explanation of A.Correct answerYour answerA is true, but R is false.Correct answerYour answerA is false, but R is true.Correct answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

Both are true.
Because sales hardly fall when the tax raises the price (R), the tax keeps a large base and brings in more revenue (A).

Concept: Elasticity and tax revenue
Typical timeTypical: 70 s
Your timeYours: —

The rule this testsThe total expenditure method

Practise this chapter →

Ten questions from Price Elasticity of Demand, at your own pace.

Assertion (A): A government that wants more tax revenue from a sales tax should tax goods with inelastic demand.Reason (R): When demand is inelastic, quantity bought falls only a little when the price rises.

Explanation

Assertion (A): A government that wants more tax revenue from a sales tax should tax goods with inelastic demand.
Reason (R): When demand is inelastic, quantity bought falls only a little when the price rises.