Suppose that policymakers are considering placing a tax on either of two markets.In Market A,the tax will have a significant effect on the price consumers pay,but it will not affect equilibrium quantity very much.In Market B,the same tax will have only a small effect on the price consumers pay,but it will have a large effect on the equilibrium quantity.Other factors are held constant.In which market will the tax have a larger deadweight loss?
A)Market A
B)Market B
C)The deadweight loss will be the same in both markets.
D)There is not enough information to answer the question.

Question

Quizplus · Accepted Answer

The deadweight loss is influenced by the elasticity of demand and supply in the market. In Market A, the tax has a significant effect on the price consumers pay, which implies that the demand is relatively inelastic, and the supply is relatively elastic. Therefore, the deadweight loss in Market A will be relatively minor due to the small change in equilibrium quantity. In Market B, the tax has only a small effect on the price consumers pay, which means that the demand is relatively elastic, while the supply is relatively inelastic. Therefore, the deadweight loss in Market B will be larger due to the substantial change in equilibrium quantity.

Suppose That Policymakers Are Considering Placing a Tax on Either