In order to raise more revenue for a certain period, the government should impose higher taxes on goods whose demand

1. Analyze the question The government wants to raise more revenue by increasing taxes. We need to find the type of goods (by price elasticity of demand) on which a higher tax will bring in the most money.

2. Explain the concept Price elasticity of demand (PED) measures how much the quantity demanded changes when price changes.

• Elastic demand (PED > 1): a price rise causes a bigger percentage fall in quantity demanded.
• Inelastic demand (PED < 1): a price rise causes a smaller percentage fall in quantity demanded.
• Perfectly elastic (PED = ∞): any price increase reduces quantity demanded to zero.
• Unitary elastic (PED = 1): the percentage change in quantity equals the percentage change in price.

A tax raises the price paid by consumers. Whether the government gains depends on how many people stop buying.

3. Step-by-step solution

• Tax revenue = tax per unit × quantity sold.
• If demand is elastic, the higher tax raises price, and quantity sold drops sharply. Total revenue may fall.
• If demand is perfectly elastic, quantity sold drops to zero, so the government collects nothing.
• If demand is unitary elastic, the fall in quantity cancels the effect of the higher tax, so there is no clear gain.
• If demand is inelastic, consumers keep buying almost the same quantity despite the higher price. The tax per unit is higher, and the quantity sold barely falls, so revenue rises.

Examples in Nigeria: petrol, cigarettes, alcohol, and salt. These are goods people keep buying even when prices rise, which is why they are common targets for excise duties.

4. Answer The government should tax goods with inelastic demand, which is option B.

5. Exam tip Remember: "Inelastic = Income for the government." If a question asks about raising revenue through taxes, think of necessities or addictive goods with few substitutes.