A given tax will impose a greater deadweight loss when:
A) both supply and demand are inelastic.
B) supply is inelastic and demand is elastic.
C) supply is elastic and demand is inelastic.
D) both supply and demand are elastic.

Question

Quizplus · Accepted Answer

When both supply and demand are elastic, the quantity traded in the market changes significantly in response to the tax, leading to a larger deadweight loss.

A Given Tax Will Impose a Greater Deadweight Loss When