The more elastic the supply 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 supply 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 supply 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 supply curve means that producers are more responsive to changes in price, so they will reduce output more in response to a tax. This will lead to a smaller increase in price and a smaller decrease in consumer surplus, which means a smaller welfare cost.

The More Elastic the Supply Curve, the ____ Will Be