Answer

20. Suppose your uncle, State Senator Graft, tells you the following: "About a million packs of cigarettes and a million movie tickets are sold each month in the state. We are considering an excise tax of 50 cents on either cigarettes or movie tickets. I think it shouldn't matter which good we tax, we should get revenue of about $500,000 either way. What do you think?" After careful thought you give the following, correct, reply.

You're absolutely right, it doesn't matter which you tax.

You should tax movies because demand for movies is more elastic so you will raise more revenue.

You should tax cigarettes because demand for cigarettes is more elastic so you will raise more revenue.
You should tax cigarettes because demand for cigarettes is more inelastic so you will raise more revenue.
You should tax movies because demand for movies is more inelastic so you will raise more revenue.