Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?
A)The greater are the price elasticities of supply and demand,the greater is the deadweight loss.
B)The greater is the price elasticity of supply and the smaller is the price elasticity of demand,the greater is the deadweight loss.
C)The smaller are the decreases in quantity demanded and quantity supplied,the greater the deadweight loss.
D)The smaller is the wedge between the effective price to sellers and the effective price to buyers,the greater is the deadweight loss.

Question

Quizplus · Accepted Answer

The deadweight loss from a tax is larger when the price elasticities of supply and demand are greater because the quantity traded decreases more significantly, leading to a larger loss in total welfare.

Which of the Following Statements Is Correct Regarding a Tax