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.
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