The elasticity of supply of capital is larger than the elasticity of supply of land,so a tax on capital income has ________ deadweight loss and a ________ effect on the equilibrium quantity than does an equal tax on land.

Question

Quizplus · Accepted Answer

The elasticity of supply of capital is larger, meaning it is more responsive to changes in price or taxation. Therefore, a tax on capital income results in a larger deadweight loss because it distorts the allocation of resources more than a tax on land, which has a less elastic supply. Additionally, the tax on capital has a larger effect on the equilibrium quantity because the supply of capital is more responsive to changes in taxation, leading to a greater reduction in the quantity of capital supplied.

The Elasticity of Supply of Capital Is Larger Than the Elasticity