Accounting Multiple Choice Question – 10 July 2025

The government is considering placing an additional tax on cigarettes to raise revenue to finance healthcare benefits.

The demand for cigarettes is price inelastic.

Which of the following statements is true?

Select ONE answer:

1. The tax on cigarettes may not raise as much revenue as anticipated in the years to come because the demand for cigarettes is likely to become more elastic over time
2. This tax will not raise much revenue either in the short term or the long term since demand is price inelastic
3. No tax revenue can be raised in this way because sellers of cigarettes will just lower their price by the amount of the tax and, therefore, the price of cigarettes to consumers will not change
4. This is a very good way to raise revenue, both in the short term and in the long term, because there are no substitutes for cigarettes

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct == > The tax on cigarettes may not raise as much revenue as anticipated in the years to come because the demand for cigarettes is likely to become more elastic over time. Price elasticity nearly always increases over time and will reduce the tax revenue. People can change their behaviour given enough time.
2. Not correct
3. Not correct
4. Not correct

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