The more elastic the demand curve, the ____ will be the effect of a tax on the quantity exchanged and the ____ will be the welfare cost.
A)greater; greater.
B)greater; smaller.
C)smaller; greater.
D)smaller; smaller.

Question

The more elastic the demand curve, the ____ will be the effect of a tax on the quantity exchanged and the ____ will be the welfare cost.​
A)​greater; greater.
B)​greater; smaller.
C)​smaller; greater.
D)​smaller; smaller.

Quizplus · Accepted Answer

The more elastic the demand curve, the greater will be the effect of a tax on the quantity exchanged and the smaller will be the welfare cost. This is because a more elastic demand curve means that consumers are more responsive to changes in price, so a tax will lead to a greater decrease in quantity demanded and a smaller increase in price. This results in a smaller welfare cost, as consumers are less willing to pay the higher price for the good.

The More Elastic the Demand Curve, the ____ Will Be