Question

The Indian Government imposed heavy taxes on commodity to reduce its consumption by the public. Such heavy taxes will decrease the demand of the commodity only when ______.

Options

• E_d = 0

• E_d > 1

• E_d < 1

• E_d = 1

Answer 1

The Indian Government imposed heavy taxes on commodity to reduce its consumption by the public. Such heavy taxes will decrease the demand of the commodity only when E_d > 1.

Explanation:

A tax that raises price will reduce consumption more effectively when demand is elastic, meaning quantity demanded responds proportionately more than price. If demand is inelastic or perfectly inelastic, consumption falls less or not at all.