By means of an appropriate diagram explain the effect of price elasticity of demand on tax revenue.?

Question

By means of an appropriate diagram explain the effect of price elasticity of demand on tax revenue. On the basis this, recommend an optimal tax system for a developing country like Nigeria?

Answer 1

Hmmm, nice homework question. Too bad I won't answer it.

I'll give you a hint: price elasticity of demand means how demand is impacted on a percentage basis relative to its comparator.

Answer 2

the less elastic the demand, the higher is the tax revenue.
less elastic means the quantity of the good will not drop as much when price increases (due to tax)