Asked by Nicole Macario on Jun 26, 2024
Verified
Suppose the demand curve and the supply curve in a market are both linear, and suppose the price elasticity of supply is 0.5. Will the deadweight loss from a $3 tax per unit be larger if the price elasticity of demand is 0.3 or if the price elasticity of demand is 0.7?
Price Elasticity
A measure of how much the quantity demanded of a good responds to a change in the price of that good, indicating the sensitivity of consumers to price changes.
- Analyze how the elasticity of demand and supply affects the dispersion of tax burdens and the creation of deadweight loss.
- Evaluate and distinguish the consequences of taxation on markets that exhibit diverse demand and supply elasticity levels.
Verified Answer
MD
Mohammed DawoudJun 28, 2024
Final Answer :
The deadweight loss will be greater if the price elasticity of demand is 0.7.
Learning Objectives
- Analyze how the elasticity of demand and supply affects the dispersion of tax burdens and the creation of deadweight loss.
- Evaluate and distinguish the consequences of taxation on markets that exhibit diverse demand and supply elasticity levels.