Concept:Tax revenue grows when a tax raises the price but the quantity demanded does not fall much.
Explanation:A tax on a commodity increases its price to consumers.
When demand is
price inelastic, the percentage fall in quantity demanded is smaller than the percentage rise in price.
So consumers keep buying almost the same quantity even though the price is higher.
This keeps the tax base large and helps the government collect more total revenue.
If demand is
price elastic, consumers reduce their purchases heavily and tax revenue falls.
Perfectly inelastic demand is only an extreme theoretical case, not a practical target for taxation.
In real life, governments tax necessities, such as fuel and tobacco, because their demand is price inelastic.
Therefore, taxing such commodities is the best way to increase government earnings.
Answer:B. price inelastic