Asked by Jonathan Philley on May 14, 2024
Verified
The governor wants to levy a $1 excise tax on a product but wants to minimize the deadweight loss.The deadweight loss will be LEAST when the demand curve is _____ and the supply curve is _____.
A) elastic;elastic
B) elastic;inelastic
C) inelastic;elastic
D) inelastic;inelastic
Deadweight Loss
The loss of economic efficiency that can occur when the equilibrium for a good or service is not achieved or is not achievable.
Excise Tax
A tax levied on the sale of specific goods and services, such as tobacco, alcohol, and gasoline.
Demand Curve
A graphical representation showing the relationship between the price of a good and the quantity demanded.
- Understand the impact of elasticity on deadweight loss.
- Evaluate tax strategies to minimize inefficiency and deadweight loss.
Verified Answer
MB
Madeline BelfordMay 16, 2024
Final Answer :
D
Explanation :
The deadweight loss will be least when both the demand and supply curves are inelastic. This is because inelastic demand and supply mean that the quantity demanded or supplied changes very little in response to price changes, resulting in a smaller deadweight loss from the tax.
Learning Objectives
- Understand the impact of elasticity on deadweight loss.
- Evaluate tax strategies to minimize inefficiency and deadweight loss.