If the Government Is Interested in Generating a Large Revenue

question 3

Multiple Choice

If the government is interested in generating a large revenue from placing a tax on the consumption of a particular good, it should choose a good for which

• A)the demand is price elastic
• B)the demand is unit elastic with respect to price
• C)the supply is perfectly elastic
• D)the demand is price inelastic
• E)there are many good substitutes

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Definitions:

Cost

Cost is the amount of money required to purchase, produce, or maintain something, encompassing both direct expenses and indirect expenditures.

Transaction Costs

Expenses incurred in buying or selling a good or service, including search and information costs, bargaining costs, and enforcement costs of policies.

Efficient Solution

An outcome where resources are allocated in the most effective manner, maximizing benefits and minimizing costs or waste.

Social Benefit

The total advantage or positive impact on society from an action or policy, including both direct effects and externalities.