Suppose the demand for toxic waste disposal is very elastic. The government imposes an excise tax on waste disposal. The deadweight loss associated with the production of toxic waste disposal will be
A) relatively small.
B) relatively large.
C) zero.
D) a rational decision.

Question

Quizplus · Accepted Answer

When demand is very elastic, consumers are highly responsive to price changes. Imposing an excise tax on waste disposal will significantly reduce the quantity demanded, leading to a relatively large deadweight loss because the market is far from the equilibrium quantity where supply equals demand.

Suppose the Demand for Toxic Waste Disposal Is Very Elastic