If the government wants to minimize the welfare loss of a tax, it should tax goods with more inelastic demand curves or supply curves.

Question

Quizplus · Accepted Answer

Taxing goods with more inelastic demand or supply curves means that consumers and producers are less responsive to price changes, so the tax is less likely to decrease demand or supply significantly. This results in a smaller welfare loss compared to taxing goods with more elastic demand or supply curves, where consumers and producers are more sensitive to price changes and the tax would have a greater impact on demand and supply.

If the Government Wants to Minimize the Welfare Loss of a Tax