Given any upward-sloping supply curve for a good,the more inelastic the demand curve,the _____ equilibrium output will fall and the _____ will be the deadweight loss when the government imposes an excise tax.

Question

Quizplus · Accepted Answer

When demand is inelastic, a change in price leads to a relatively smaller change in quantity demanded. Therefore, with an excise tax, the equilibrium output falls less because consumers are less sensitive to the price increase. Additionally, the deadweight loss is smaller because the market is closer to the efficient level of trade than it would be if demand were more elastic.

Given Any Upward-Sloping Supply Curve for a Good,the More Inelastic