Figure 8-15

-Refer to Figure 8-15. Panel (a) and Panel (b) each illustrate a $4 tax placed on a market. In comparison to Panel (b), Panel (a) illustrates which of the following statements?

Question

Figure 8-15
 
-Refer to Figure 8-15. Panel (a) and Panel (b) each illustrate a $4 tax placed on a market. In comparison to Panel (b), Panel (a) illustrates which of the following statements?

Quizplus · Accepted Answer

Panel (b) shows a larger deadweight loss of a tax because the demand is relatively elastic, meaning that consumers are more responsive to changes in price. When a tax is imposed, the increase in price causes a greater reduction in quantity demanded, increasing the deadweight loss. Panel (a) shows a smaller deadweight loss of a tax because the demand is relatively inelastic, meaning that consumers are less responsive to changes in price. The tax causes a smaller reduction in quantity demanded, resulting in a smaller deadweight loss.

Figure 8-15 -Refer to Figure 8-15. Panel (A) and Panel (B) Each