The more elastic are supply and demand in a market, the greater are the distortions caused by a tax on that market, and the more likely it is that a tax cut in that market will raise tax revenue.

Question

Quizplus · Accepted Answer

When supply and demand are more elastic, a tax causes larger changes in quantity, leading to greater distortions and deadweight loss. A tax cut can increase revenue if the initial tax was on the elastic side of the Laffer curve, where lower rates can lead to higher revenue.

The More Elastic Are Supply and Demand in a Market