Asked by Marcus Peinado on Jul 20, 2024
Verified
The demand for beer is more elastic than the demand for milk, so a tax on beer would have a smaller deadweight loss than an equivalent tax on milk, all else equal.
Deadweight Loss
Economic inefficiency created by a divergence from the optimal market equilibrium, often caused by taxes, subsidies, or other market interventions.
Beer
An alcoholic beverage made from the fermentation of cereal grains, primarily barley, with hop additions for flavor.
Milk
A nutrient-rich liquid food produced by the mammary glands of mammals, commonly consumed by humans as a beverage or used in dairy products.
- Investigate the role of demand and supply elasticities in shaping tax-related distortions within the market.
- Analyze the importance of market elasticity in the evaluation of deadweight loss and tax proceeds.
Verified Answer
TH
Tahir HussainJul 24, 2024
Final Answer :
False
Explanation :
The demand for beer is generally more elastic than the demand for milk because consumers can more easily find substitutes for beer than they can for milk, which is often considered a necessity. Therefore, a tax on beer would likely lead to a larger reduction in quantity demanded compared to milk, resulting in a larger deadweight loss for beer than for milk, all else equal. Elastic demand means consumers are more responsive to price changes, leading to larger efficiency losses when taxes distort prices.
Learning Objectives
- Investigate the role of demand and supply elasticities in shaping tax-related distortions within the market.
- Analyze the importance of market elasticity in the evaluation of deadweight loss and tax proceeds.