Question: Governments often have multiple objectives in imposing a tax. In each part of this question, use a demand and supply graph to illustrate your answer.
Governments often have multiple objectives in imposing a tax. In each part of this question, use a demand and supply graph to illustrate your answer.
a. If the government wants to minimize the excess burden from excise taxes, should these taxes be imposed on goods that have price-elastic demand or goods that have price-inelastic demand?
b. Suppose that rather than minimizing excess burden, the government is most interested in maximizing the revenue it receives from the tax. In this situation, should the government impose excise taxes on goods that have price-elastic demand or on goods that have price-inelastic demand?
c. Suppose that the government wants to discourage smoking and drinking alcohol. Will a tax be more effective in achieving this objective if the demand for these goods is price elastic or if the demand is price inelastic?
Step by Step Solution
3.52 Rating (165 Votes )
There are 3 Steps involved in it
a If the government wants to minimize the excess burden of excise taxes the taxes should be imposed ... View full answer
Get step-by-step solutions from verified subject matter experts
Document Format (1 attachment)
1347-B-A-A-M-E(836).docx
120 KBs Word File
