If the government wants to minimise the welfare loss of a tax, it should tax goods with more inelastic demands or supplies.

Question

Quizplus · Accepted Answer

Goods with more inelastic demands or supplies have fewer substitutes available, so consumers or producers are less likely to change their behavior in response to a tax. Therefore, taxing these goods will result in a smaller welfare loss compared to goods with more elastic demands or supplies.

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