'Assume that the demand for entertainment is more elastic than the demand for petrol'.According to this statement, a tax levied on petrol will cause the loss of consumer surplus to be:
A)zero (because raising the price of gasoline has no effect on the amount purchased)
B)relatively large
C)relatively small
D)either small or large (depending on the elasticity of supply)

Question

Quizplus · Accepted Answer

Since the demand for petrol is less elastic (inelastic), consumers are less responsive to price changes. Therefore, a tax on petrol, which raises the price, will result in a relatively small loss of consumer surplus because consumers will continue to buy petrol despite the price increase.

'Assume That the Demand for Entertainment Is More Elastic Than