Question

1. After economics class one day, your friend suggests that taxing food would be a good way to raise revenue because the demand for food is quite inelastic. In what sense is taxing food a “good” way to raise revenue? In what sense is it not a “good” way to raise revenue?

Answer 1

Taxing food is a “good” way to raise revenue because if the demand for food is inelastic, the quantity demanded decreases in a less degree, than the price increases. So their product increases.

It is not a “good” way to raise revenue, because taxing causes the deadweight loss of the national economy.