Asked by Erika Johnson on Jun 11, 2024
Verified
Refer to Table 8-1. Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will allow the government to minimize the deadweight loss(es) from the tax?
A) Market A only
B) Markets A and C only
C) Markets B and D only
D) Market C only
Deadweight Loss
A reduction in economic effectiveness occurring when a good or service doesn't attain market equilibrium in an unrestricted market scenario.
Elastic Supply
A situation where the quantity supplied changes significantly in response to changes in price.
Elastic Demand
A situation where the demand for a product or service significantly changes in response to a change in price.
- Understand the concept of deadweight loss and its causes in the context of taxation.
- Distinguish between elastic and inelastic supply and demand contexts in relation to tax efficiency.
Verified Answer
RT
Reagan Townsend
Jun 15, 2024
Final Answer :
C
Explanation :
Deadweight loss is minimized in markets where either demand or supply (or both) is inelastic, as the quantity traded is less responsive to price changes. Markets B and D, where demand or supply is very inelastic, will thus minimize the deadweight losses from a tax.
Learning Objectives
- Understand the concept of deadweight loss and its causes in the context of taxation.
- Distinguish between elastic and inelastic supply and demand contexts in relation to tax efficiency.