Why should the government consider the price elasticity of demand when imposing tax on goods?

The price elasticity of demand tells you how sensitive consumers are to a change in the price of a good. Therefore the more sensitive (elastic) the demand is, the more the tax will effect the demand. So, if the good has a relatively inelastic demand then a tax would cause relatively less percentage change in demand compared to the percentage change in price. This is the case for goods such as cigarettes, as they are addictive the demand is inelastic hence a tax would only marginally reduce demand. Thus if the aim of the government was to reduce the amount consuming cigarettes the PED would allow the government to realise that they should undertake different methods to deter consumers from purchasing cigarettes. Hence the PED helps the government foresee the result of the tax they would be imposing.

TT
Answered by Tamara T. Economics tutor

29892 Views

See similar Economics GCSE tutors

Related Economics GCSE answers

All answers ▸

In theory, what should happen if there is excess supply for a good, what should happen?


How would you structure a 6 mark essay question?


Evaluate the view that perfect competition is a more efficient market structure than monopoly.


Bill's Diner is an American burger restaurant. There is an increase in import costs of products needed from America, and change in perceptions of fast food such as burgers, due to an increase in health warnings. Discuss the effects on the market. (6)


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2025 by IXL Learning