Answer
C.cigarettes
Explanation
One possible rephrased version of the statement could be:
Taxing cigarettes is an effective way to generate tax revenue as it is unlikely to significantly reduce sales. This is because cigarette consumers typically have limited alternatives and are therefore more willing to bear the additional cost. Moreover, goods that have low price elasticity, such as cigarettes, generate more revenue when taxed compared to highly elastic goods like potatoes, which would experience a significant drop in sales.
To elaborate further, price elasticity refers to how responsive consumers are to changes in the price of a product. If a product has a high degree of price elasticity, then consumers are likely to reduce their purchases significantly when the price increases. On the other hand, goods with low elasticity, such as cigarettes, are less sensitive to changes in price, which means that tax increases are less likely to deter consumers from buying them.
Cigarettes are also considered a good candidate for excise taxes because they are often addictive, meaning consumers are willing to pay a higher price to continue using them. Moreover, unlike other products, cigarettes do not have close substitutes, which makes it challenging for consumers to switch to a cheaper alternative when the price increases.
Overall, the effectiveness of taxing a product depends on its price elasticity and the availability of substitutes. Goods with low elasticity, such as cigarettes, are likely to generate more revenue when taxed compared to highly elastic goods, such as potatoes. However, it is also worth considering the potential health and social costs associated with products like cigarettes when deciding on taxation policies.
