The price elasticities of supply and demand affect A. the tax incidence but not the size of the deadweight loss from a tax. B. both the size of the deadweight loss from a tax and the tax incidence. C. the size of the deadweight loss from a tax but not the tax incidence. D. neither the size of the deadweight loss from a tax nor the tax incidence.

Question

Derick Ayala

Business

20 June, 05:29

The price elasticities of supply and demand affect A. the tax incidence but not the size of the deadweight loss from a tax. B. both the size of the deadweight loss from a tax and the tax incidence. C. the size of the deadweight loss from a tax but not the tax incidence. D. neither the size of the deadweight loss from a tax nor the tax incidence.

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Answers (1)

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Jessie Kelly · Answer 1

B. both the size of the deadweight loss from a tax and the tax incidence

Explanation:

The price elasticities of demand & supply are : buyers' & sellers' - demand & supply responsiveness to price change.

On levy of indirect tax - whose burden can be shared between buyers & sellers; it affects tax incidence & deadweight loss both : -

More tax burden shifts on buyers if demand is more inelastic, more tax burden shifts on sellers if supply is more inelastic. Deadweight loss is the effect of tax re allocation, benefitting neither of consumer surplus, producer surplus, government revenue. It is less when demand &, or supply are more inelastic