In which case is the deadweight loss of a tax the smallest?
A) Demand and supply are both relatively elastic.
B) Demand is relatively elastic and supply is relatively inelastic.
C) Demand is relatively inelastic and supply is perfectly elastic.
D) Demand and supply are both relatively inelastic.

Question

Quizplus · Accepted Answer

Deadweight loss of a tax is smallest when both demand and supply are relatively inelastic because the quantity traded is less responsive to price changes, resulting in a smaller reduction in total trade and welfare.

In Which Case Is the Deadweight Loss of a Tax