Question
If policymakers' goal is to raise revenue with the least excess burden possible, while avoiding a tax that is considered inequitable such as the lump-sum
If policymakers' goal is to raise revenue with the least excess burden possible, while avoiding a tax that is considered inequitable such as the lump-sum tax, then they should:
a.set a high tax rate on commodities with price-elastic demand to give consumers the opportunity to avoid the tax by choosing other products.
b.set tax rates so that the percentage increase in the after-tax price is the same for each commodity.
c.set tax rates so that the percentage reduction in the quantity demanded of each commodity is the same.
d.set a low tax rate on commodities with price-inelastic demand because these tend to be necessities and taxation of necessities creates a larger excess burden.
Choose the answer, then explain fully.
Step by Step Solution
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Step: 1
The correct answer is b Policymakers should set tax rates so that the percentage increase in the aft...Get Instant Access to Expert-Tailored Solutions
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