Question

5. Deby and John are two advisors for a city government. Deby says that since the elasticity of demand fr granite countertop is-3 and the elasticity of demand for sinks is-1.5, taxes should be raised entirely from granite countertops. John argues that it is better to levy taxes on both goods anyway. Which advisor should this city government listen to? Why?

Answer 1

Since both have inelastic demand. So the taxes should be levied on both goods, as the quantity demanded will change by very little amount and government's tax revenue also rises without affecting the quantity demanded.