Asked by Jackie Ramirez on Jul 24, 2024
Verified
The deadweight loss of a specific tax will be a small share of the tax revenue collected if:
A) supply is more inelastic than demand.
B) demand is more inelastic than supply.
C) supply and demand are both elastic.
D) supply and demand are both inelastic.
Deadweight Loss
An economic inefficiency resulting from the lack of or impossibility to attain equilibrium in the market for a particular good or service.
Tax Revenue
The income generated by the government through the imposition of taxes on goods, services, and income.
Supply and Demand
Supply and demand is a fundamental economic model describing how prices and quantities of goods and services are determined in a market.
- Gain an understanding of the notion of deadweight loss and its triggers in the framework of taxation and subsidies.
Verified Answer
RC
Ramón CastilloJul 29, 2024
Final Answer :
D
Explanation :
When both supply and demand are inelastic, consumers and producers do not change their quantity bought or sold by much in response to the tax. This results in a smaller deadweight loss compared to scenarios where supply or demand is more elastic, as the tax does not significantly distort market behavior.
Learning Objectives
- Gain an understanding of the notion of deadweight loss and its triggers in the framework of taxation and subsidies.