Taxing goods with very inelastic supply generates less deadweight loss than taxing goods with very elastic supply because

Question

Quizplus · Accepted Answer

Taxing goods with very inelastic supply results in a smaller change in producer behavior because producers cannot easily change the quantity they supply in response to the tax. This leads to less distortion in the market and, consequently, a smaller deadweight loss compared to taxing goods with very elastic supply, where producers can more easily adjust their behavior, leading to greater market distortions and a larger deadweight loss.

Taxing Goods with Very Inelastic Supply Generates Less Deadweight Loss