In order to increase revenue, government should tax commodities for which demand is

Step 1: Analyze the question The government wants to raise more revenue through taxes on commodities. We need to pick the type of demand that makes this most effective.

Step 2: The concept Price elasticity of demand (PED) measures how much quantity demanded changes when price changes.

• When a tax is placed on a good, its price rises.
• If demand is inelastic, consumers cut back only slightly, so the government keeps collecting a lot of tax.
• If demand is elastic, consumers cut back sharply, the tax base shrinks, and revenue falls.

Step 3: Examine the options

• A. Perfectly price inelastic (PED = 0): In theory, quantity never changes, so revenue would be highest. But this is an extreme, almost non-existent case in the real world. Very few goods have zero response to price.
• B. Price inelastic (PED < 1): Quantity demanded falls by a smaller percentage than the price rises. Examples are cigarettes, alcohol, and petrol. Tax revenue rises. This is the standard textbook answer.
• C. Price elastic (PED > 1): Consumers react strongly, so the tax revenue falls.
• D. Unitary elastic (PED = 1): The percentage fall in quantity equals the percentage rise in price, so there is no gain.

Step 4: Conclusion My own working agrees with the key: price inelastic demand is the best answer.

Exam tip: Remember "Inelastic = Income for government." Goods people need or are addicted to (fuel, tobacco, alcohol, salt) are the best tax targets because buyers keep buying even when the price goes up.