Multiple objectives in imposing a tax

Reference no: EM131023579

Governments often have multiple objectives in imposing a tax. In each part of this question, use a demand and supply graph to illustrate your answer.

a. If the government wants to minimize the excess burden from excise taxes, should these taxes be imposed on goods that have price elastic demand or goods that have price inelastic demand?

b. Suppose that rather than minimizing excess burden, the government is most interested in maximizing the revenue it receives from the tax. In this situation, should the government impose excise taxes on goods that have price elastic demand or on goods that have price inelastic demand?

c. Suppose that the government wants to discourage smoking and drinking alcohol. Will a tax be more effective in achieving this objective if the demand for these goods is price elastic or if the demand is price inelastic?

Reference no: EM131023579

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