List at least two ways in which the elasticity in supply and

List at least two ways in which the elasticity in supply and demand for a product should affect how we think about taxing a product.?

Solution

1) Consider a highly elastic product and when we get to increase the taxes, the demands falls drastically with the increase in the price and this can finally get to reduce in the revenue and this can effect the economy. Therefore it would not be a great idea to tax a highly elastic product.

2) Consider inelastic goods and even if there\'s taxation that improves the price to a higher node, the total revenue is not going to be effected much or total revenue increases and therefore they can be in the verge of taxation all in all.