Figure 17-2 shows a demand curve and two sets of supply curves, one set more elastic than the other.
-Refer to Figure 17-2. If the government imposes an excise tax of $1.00 on every unit sold
A) the deadweight loss is identical under either supply curve.
B) the deadweight loss is greater under the supply curve S1.
C) the deadweight loss is greater under the supply curve S0.
D) there is no deadweight loss since revenue raised is used to fund government projects.

Question

Figure 17-2 shows a demand curve and two sets of supply curves, one set more elastic than the other.
-Refer to Figure 17-2. If the government imposes an excise tax of $1.00 on every unit sold
A) the deadweight loss is identical under either supply curve. 
B) the deadweight loss is greater under the supply curve S1. 
C) the deadweight loss is greater under the supply curve S0. 
D) there is no deadweight loss since revenue raised is used to fund government projects.

Quizplus · Accepted Answer

The deadweight loss is greater under the more elastic supply curve (S0) because the tax causes a larger distortion in the quantity traded. Elasticity affects how much the quantity supplied and demanded responds to changes in price, including taxes.

Figure 17-2 Shows a Demand Curve and Two Sets of Supply