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Questions and Answers
Why would a firm with a good of elastic demand take most of the tax burden upon themselves?
Because they know if the price of the good increases, demand is likely to fall, which will lower their overall revenue.
What is the likely outcome for a firm with a good of elastic demand if the price of the good increases?
Demand is likely to fall, which will lower their overall revenue.
Why is it not as effective for raising government revenue when a firm with a good of elastic demand takes most of the tax burden upon themselves?
Because the firm's decrease in quantity demanded due to the price increase lowers the overall revenue, affecting the tax revenue.
When would it be effective for a government to reduce the demand of a particular good?
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