A Government Plans to Implement a $1 Tax in One

question 129

Multiple Choice

A government plans to implement a $1 tax in one of two markets: the first market has elastic supply and demand curves and the second market has inelastic supply and demand curves. If the government's aim is to raise the most revenue with the smallest deadweight loss, where should the tax be placed?

• A) In the market with elastic supply and demand curves.
• B) In the market with inelastic supply and demand curves.
• C) It is impossible to say without more information.
• D) Since the burden is shared, it doesn't matter in which market the tax is placed.

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