Explore BrainMass

Elasticity and tax revenues

This content was STOLEN from BrainMass.com - View the original, and get the solution, here!

Why is it wiser for the government to put a sales tax on a good that is demand inelastic than on one that is demand elastic?

© BrainMass Inc. brainmass.com September 21, 2018, 2:49 am ad1c9bdddf - https://brainmass.com/economics/elasticity/elasticity-and-tax-revenues-347139

Solution Preview

Technically sales tax is paid by the customer and is collected by the seller on behalf of tax authority. But sales tax increases the price of good and affects the demand. Extent by which demand is affected depends upon price elasticity ...

Solution Summary

Solution discusses why it is wiser for the government to put sales tax on a good that has inelastic demand.