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What type of goods would you recommend that the government tax if it wants the tax...

What type of goods would you recommend that the government tax if it wants the tax to result in no deadweight loss?

a. Inelastic goods with a price elasticity of demand and supply as close to infinity as possible

b. Elastic goods with a price elasticity of demand and supply as high as possible

c. Unit elastic good with a price elasticity of demand and supply as close to 1 as possible

d. Inelastic goods with a price elasticity of demand and supply as close to zero as possible

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Answer #1

Ans) the correct option is b. Elastic goods with a price elasticity of demand and supply as high as possible

When the demand for a good is elastic, a small percentage change in price will lead to a larger percentage change in quantity demanded so the deadweight loss is lower when the demand is elastic.

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