If policymakers' goal is to raise revenue with the least excess burden possible, while avoiding a tax that is considered inequitable such as the lump-sum tax, then they should:

a.set a high tax rate on commodities with price-elastic demand to give consumers the opportunity to avoid the tax by choosing other products.

b.set tax rates so that the percentage increase in the after-tax price is the same for each commodity.

c.set tax rates so that the percentage reduction in the quantity demanded of each commodity is the same.

d.set a low tax rate on commodities with price-inelastic demand because these tend to be necessities and taxation of necessities creates a larger excess burden.

Choose the answer, then explain fully.

Answer rating: 100% (QA)

The correct answer is b Policymakers should set tax rates so that the percentage increase in the aft... View the full answer