Asked by Hussain Khudair on Jun 25, 2024
Verified
The size of a tax distortion depends on how elastic the parties are to a transaction.
Tax Distortion
Describes how taxes can alter market behavior and lead to efficiency loss compared to an untaxed market.
- Recognize the influence of tax elasticity on tax distortion and excess burden.
Verified Answer
LF
Lihini FernandoJun 25, 2024
Final Answer :
True
Explanation :
The size of a tax distortion is indeed influenced by the elasticity of the parties involved in a transaction. If either the buyer or the seller is highly responsive (elastic) to price changes, a tax can significantly alter their behavior, leading to larger distortions in the market.
Learning Objectives
- Recognize the influence of tax elasticity on tax distortion and excess burden.