Asked by Hisaah Bin madhi on Jul 16, 2024
Verified
If the government imposes a per-unit tax on good Y and the supply of good Y is perfectly inelastic,there will be no deadweight loss due to the tax.
Perfectly Inelastic
A market situation where the quantity demanded or supplied does not change in response to a change in price.
Deadweight Loss
The inefficiency caused in a market where all potential gains from trade are not realized due to factors like taxes or subsidies.
Per-Unit Tax
A tax imposed on a product on a per unit basis, raising the cost of production or sale for that product.
- Assess how taxation intervenes in market activities, notably through deadweight loss and the transformation of consumer and producer surplus.
Verified Answer
PA
Pradeep AgrawalJul 22, 2024
Final Answer :
True
Explanation :
If supply is perfectly inelastic, it means that producers are unable to adjust the quantity supplied in response to a change in price. Therefore, regardless of the tax, the price of the good will remain the same and the burden of the tax will fall entirely on the consumers. Since there is no change in quantity demanded or supplied, there will be no deadweight loss.
Learning Objectives
- Assess how taxation intervenes in market activities, notably through deadweight loss and the transformation of consumer and producer surplus.