The deadweight loss of a specific tax will be a small share of the tax revenue collected if:
A) supply is more inelastic than demand.
B) demand is more inelastic than supply.
C) supply and demand are both elastic.
D) supply and demand are both inelastic.

Question

Quizplus · Accepted Answer

When both supply and demand are inelastic, consumers and producers do not change their quantity bought or sold by much in response to the tax. This results in a smaller deadweight loss compared to scenarios where supply or demand is more elastic, as the tax does not significantly distort market behavior.

The Deadweight Loss of a Specific Tax Will Be a Small