'Assume that the supply of forest products is relatively inelastic and the supply of coffee is relatively elastic'.According to this statement, a tax levied on coffee will cause the loss of producer surplus to be:
A)relatively large
B)relatively small
C)zero
D)either small or large, depending on the elasticity of demand

Question

Quizplus · Accepted Answer

When the supply of a good is relatively elastic, the producer can quickly adjust their production to changes in price. However, when the supply of a product is relatively inelastic, producers are unable to adjust their production to changes in price. If a tax is imposed on coffee, the producer of coffee will be unable to adjust their production to minimize the impact of the tax on their revenue. As a result, the loss of producer surplus will be relatively large.

'Assume That the Supply of Forest Products Is Relatively Inelastic