Asked by Arika DeCara on Jun 17, 2024
Verified
When a good is taxed, the deadweight loss is larger the more elastic are demand and supply.
Deadweight Loss
An economic inefficiency resulting from a market not reaching equilibrium, where potential gains from trade are not fully realized.
Demand
It represents the quantity of a good or service that consumers are willing and able to purchase at various prices.
Supply
The total amount of a product or service that is available to consumers.
- Assess the impact of elasticity in supply and demand on the distortions caused by taxation in the marketplace.
- Determine the function of market elasticity in establishing both deadweight loss and tax income.
Verified Answer
HV
Hayley VanityJun 22, 2024
Final Answer :
True
Explanation :
When demand and supply are more elastic, consumers and producers are more responsive to price changes, leading to larger reductions in quantity traded and thus a larger deadweight loss when a tax is imposed.
Learning Objectives
- Assess the impact of elasticity in supply and demand on the distortions caused by taxation in the marketplace.
- Determine the function of market elasticity in establishing both deadweight loss and tax income.