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Elasticity and tax revenues

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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?

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

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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 provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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