Explain price elasticity (of demand) and why is it important for the Government

Question

Explain price elasticity (of demand) and why is it important for the Government to understand elasticity (of demand) before it raises a tax on a product such as tobacco (inelastic), or luxury yahcts (elastic), in order to increase tax revenues.

I need to give a presentation on this topic...
I understand following: That taxing a product raises its price so raising tax on an inelastic good will increase tax revenue and increasing tax on elastic good will decrease tax revenue, is this correct?

I just need someone to give me a good intro to this topic for my presentation and any other stuff that would make my presentation more exciting/funny

Explanation / Answer

Yes, taxing an inelastic good will tend to increase government revenue, while taxing an elastic good will tend to decrease revenue. Elasticity measures how willing people are to change their behavior in response to a price increase, like a tax --- so when demand is elastic, people buy a different product, or they buy nothing at all, in order to avoid paying the tax. Inelastic means that people don't have much flexibility, so they're forced to paid the tax. If you want a little ha-ha to drive this point home, you might mention that this is the economic rationale behind high estate taxes: nobody is going to decide not to die just to avoid paying death taxes.

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