Homework Answers
ANSWER:
Since the government wants to maximize the tax revenue and can tax only one of the two goods , they will tax the good which has lower price elasticity of demand as the people who buy that good will buy the good regardless of the tax imposed as the good is is comparatively inelastic to the other good and so its consumption won't be affected and government would be able to maximize its revenue because if they taxed the good with higher price elasticity comparatively to the lower price elasticity good then the people will buy less of that good and government revenue won't be maximized.
so the correct answer is option b that is lower price elasticity of demand.
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