Economics · Public Finance

According to the Ramsey Taxation Rule, which of the following is correct for achieving optimal commodity taxation?

Verified Solution4 OptionsUpdated: October 2026👁️1 View

1High taxes should be levied on goods with perfectly elastic demand.
2High taxes should be levied only on luxury goods.
3Tax rates should be inversely proportional to the social value of the commodity.
4Higher tax rates should be levied on goods and services with inelastic demand or supply.✓

Correct answer

Higher tax rates should be levied on goods and services with inelastic demand or supply.

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