Question
If the main objective of the government is to raise revenue, it should tax commodities with
Answer: Option D
Answer: (d)
The Ramsey rule states that commodities with low elasticities of demand should be taxed at higher rates than commodities with high elasticities of demand.
However, low-income people might spend a higher proportion of their incomes on commodities with low elasticities of demand (food, clothing, and so on) than might high-income people.
Consequently, following the Ramsey rule may result in a regressive taxation scheme society may view as inequitable.
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Answer: (d)
The Ramsey rule states that commodities with low elasticities of demand should be taxed at higher rates than commodities with high elasticities of demand.
However, low-income people might spend a higher proportion of their incomes on commodities with low elasticities of demand (food, clothing, and so on) than might high-income people.
Consequently, following the Ramsey rule may result in a regressive taxation scheme society may view as inequitable.
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