As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.

Question

Quizplus · Accepted Answer

When both the price elasticity of supply and demand increase, it means that suppliers and consumers are more responsive to price changes. Therefore, a tax that raises the price of a good or service will lead to a larger decrease in quantity demanded and supplied, resulting in a larger deadweight loss as the tax distorts the market more significantly.

As the Price Elasticities of Supply and Demand Increase, the Deadweight