Consider a 10% excise tax that is similarly applied to good X,which has a price elasticity of 2.7,and to good Y,that has a price elasticity of 0.6.We can predict that the excess burden of this tax in the market for good X will be the excess burden in the market for good Y.

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Quizplus · Accepted Answer

The excess burden of a tax is directly related to the price elasticity of demand for the good being taxed. A higher elasticity means that consumers are more sensitive to a change in price, and therefore, a tax will lead to a larger reduction in quantity demanded and a larger deadweight loss. Good X has a higher elasticity of 2.7, indicating that consumers are more responsive to changes in price than consumers of good Y with an elasticity of 0.6. Therefore, the excess burden of the tax in the market for good X will be larger than that in the market for good Y.

Consider a 10% Excise Tax That Is Similarly Applied to Good