Asked by Bruno Vieira on May 11, 2024
Verified
The demand for energy drinks is more elastic than the demand for milk. Would a tax on energy drinks or a tax on milk have a larger deadweight loss? Explain.
Deadweight Loss
An inefficiency in the market where the total surplus of producer and consumer is not maximized due to factors like taxes or subsidies.
Elastic Demand
A situation where the quantity demanded of a good or service significantly changes in response to a change in price.
- Understand the impact of demand and supply elasticity on tax burden distribution and deadweight loss.
- Analyze and differentiate the impact of taxation on markets characterized by varying degrees of demand and supply elasticity.
Verified Answer
AR
Amanda RamosMay 17, 2024
Final Answer :
A tax on energy drinks would have a larger deadweight loss than a tax on milk. A tax on energy drinks would raise their price. Because their demand is more elastic, quantity would respond more, thus increasing deadweight loss.
Learning Objectives
- Understand the impact of demand and supply elasticity on tax burden distribution and deadweight loss.
- Analyze and differentiate the impact of taxation on markets characterized by varying degrees of demand and supply elasticity.