The demand for liquor is inelastic

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A state in the southeastern region of the United States operates state liquor stores. Prices at the stores are set in the following fashion: add 41% to the wholesale price at which the system acquires the product. To that is added an excise of $8.10 per case. The state sold roughly 36 million cases. The state, however, increases the excise rate to $9.10 per case, and a tentative revenue estimate shows that excise revenue will increase by $36 million. The state economist objects: “The demand for liquor is inelastic, so sales will be relatively insensitive to a tax increase. Therefore, revenue will increase by more than $36 million.” What is your reaction to this objection?

Reference no: EM131101309

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