A tax on a market with elastic demand and elastic supply will shrink the market more than a tax on a market with inelastic demand and inelastic supply will shrink the market.

Question

Quizplus · Accepted Answer

In markets with elastic demand and supply, consumers and producers are more responsive to price changes. Therefore, a tax that raises prices will lead to a significant reduction in the quantity bought and sold, shrinking the market more than in markets with inelastic demand and supply, where participants are less sensitive to price changes.

A Tax on a Market with Elastic Demand and Elastic