Figure 8-15
-Refer to Figure 8-15.Panel (a)and Panel (b)each illustrate a $4 tax placed on a market.In comparison to Panel (b),Panel (a)illustrates which of the following statements?
A)When demand is relatively inelastic,the deadweight loss of a tax is smaller than when demand is relatively elastic.
B)When demand is relatively elastic,the deadweight loss of a tax is larger than when demand is relatively inelastic.
C)When supply is relatively inelastic,the deadweight loss of a tax is smaller than when supply is relatively elastic.
D)When supply is relatively elastic,the deadweight loss of a tax is larger than when supply is relatively inelastic.

Question

Figure 8-15  
-Refer to Figure 8-15.Panel (a)and Panel (b)each illustrate a $4 tax placed on a market.In comparison to Panel (b),Panel (a)illustrates which of the following statements?
A)When demand is relatively inelastic,the deadweight loss of a tax is smaller than when demand is relatively elastic. 
B)When demand is relatively elastic,the deadweight loss of a tax is larger than when demand is relatively inelastic. 
C)When supply is relatively inelastic,the deadweight loss of a tax is smaller than when supply is relatively elastic. 
D)When supply is relatively elastic,the deadweight loss of a tax is larger than when supply is relatively inelastic.

Quizplus · Accepted Answer

Panel (a) shows a relatively elastic demand curve, where a small increase in price leads to a large decrease in quantity demanded, resulting in a larger deadweight loss compared to panel (b), which shows a relatively inelastic demand curve. When demand is elastic, consumers are more sensitive to price changes, and hence a tax leads to a larger change in consumer behavior, resulting in a larger deadweight loss.