How the concept of elasticity guides decisions in the Government’s tax policy on household consumption

Explain how the concept of elasticity guides decisions in the Government‟s tax policy on household consumption

Government tax policy on household consumption:
An indirect tax has an effect of increasing the price of the product and how much of the tax burden is going to be transferred to the final consumer depends on the nature of elasticity of demand.

Assuming that the objective of the government is to discourage consumption, the tax policy is going to b e effective only if the demand for the taxable commodity is relatively elastic so that an increase in its price reduces the quantity demanded more than proportionately



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