Question

The more inelastic are demand and supply, the greater is the deadweight loss of a tax.

	True
	False

Answer 1

Answer

False

The more elastic the supply and demand the less is the dead weight loss.

Elastiity measures the sesitivity to the price, if consumers and suppliers are less sensistive to price, the quantity demanded will fall by a lesser magnitude. This gives rise to deadweight loss of lesser magnitude.

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