Question

A(n) ________ in the elasticity of supply or demand in a market for a good that is taxed would tend to ________ tax revenue from that tax.

a. increase; decrease
b. increase; have no effect on
c. decrease; have no effect on
d. decrease; decrease e. increase; increase

Answer 1

a. increase; decrease

Step-by-step explanation:

Elasticity of demand measures the responsiveness of quantity demanded to changes in price.

The higher the elasticity of demand, the more sensitive quantity demanded is to price changes.

The lower the elasticity of demand, the less sensitive quantity demanded is to price changes.

If elasticity increases, it means it becomes more sensitive to price changes.

Taxes usually increase the price of a good.

So if elasticity is higher and a good is taxed, there would a fall in the quantity demanded and a fall in revenue from the tax.

Conversely, if elasticity decreases, the revenue from tax would be higher.

I hope my answer helps you