Assume that the demand for diamonds is more elastic than the demand for gasoline.What happens to the consumer surplus if the same percentage tax is levied on both products
A)The loss of consumer surplus is relatively small for diamonds.
B)The loss of consumer surplus is relatively large for diamonds.
C)The gain of consumer surplus is relatively small for diamonds.
D)The gain of consumer surplus is relatively large for diamonds.

Question

Quizplus · Accepted Answer

If the demand for diamonds is more elastic than the demand for gasoline, then consumers are more sensitive to changes in the price of diamonds than they are to changes in the price of gasoline. This means that if the same percentage tax is levied on both products, the price increase for diamonds will cause a relatively larger decrease in the quantity demanded and consumer surplus compared to gasoline. Therefore, the loss of consumer surplus is relatively large for diamonds.

Assume That the Demand for Diamonds Is More Elastic Than