Asked by Geneiva Kaarto on Jun 16, 2024
Verified
When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic.
Deadweight Loss
A reduction in economic effectiveness that happens when a good or service fails to reach or cannot reach its equilibrium.
Demand
The quantity of a good or service that consumers are willing and able to purchase at a given price.
Elastic
A characteristic of supply or demand that indicates a high sensitivity to changes in price.
- Scrutinize the effects of demand and supply flexibility on distortions in the market caused by taxation.
- Identify the role of market elasticity in determining the deadweight loss and tax revenue.
Verified Answer
SG
Samson GoudreauJun 20, 2024
Final Answer :
True
Explanation :
When demand is relatively elastic, consumers are more sensitive to price changes, including those caused by taxes, leading to a larger reduction in quantity bought and sold, which in turn results in a larger deadweight loss compared to a situation where demand is relatively inelastic.
Learning Objectives
- Scrutinize the effects of demand and supply flexibility on distortions in the market caused by taxation.
- Identify the role of market elasticity in determining the deadweight loss and tax revenue.