Greece raises taxes on alcohol and tobacco - Elasticity of demand revision
Monday, January 11, 2010
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The Greek government have decided to increase taxes on alcohol and tobacco to try and reduce their crippling budget deficit. This is a great example of taxing goods for which demand is price inelastic to increase government revenue. Click read more for some GCSE style questions to go with the article.
1. Explain what is meant by price inelastic demand (2 marks)
2. ‘Goods such as alcohol and tobacco should be highly taxed.’ Do you agree with this statement? Give reasons for your answer. (6 marks)
Points to discuss
Alcohol and tobacco producing negative externalities
Regressive nature of indirect taxes
Potential for high returns for the government due to demand being price inelastic.
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