A province needs to raise money, and the finance minister has a choice of imposing
a lump sum sales tax of the same amount on one of two previously untaxed goods, good A and
good B. Good A and B currently trade at the same price and quantity in their respective
markets.
a. Assume both the demand and supply of good A are more price elastic than demand and
supply for good B. If the finance minister wants to maximize tax revenue, which good should
she tax? If the finance minister wants to minimize deadweight loss, which good should she tax?
Explain briefly, you can use a graph to explain.