Please rank the follow curves as to how they would contribute to deadweight loss if a...
Please rank the follow curves as to how they would contribute to deadweight loss if a good that had this elasticity was taxed. Assume the supply curve has an elasticity equal to 1.
Most deadweigh loss
least deadweigh loss
1.a demand curve with price elastisity of demand equal to 100
2. a demand curve with price elastisity of demand equal to 0.4
3. a demand curve that is perfectly inelastic
4. a demand curve that is unit elastic
Homework Answers
Dead weight loss occurs when the loss of value to the market participants is greater than the gain to the government.
Least Deadweight loss:
1. A demand curve that is perfectly inelastic: This curve will have the least deadweight loss since, when either demand or supply is inelastic the quantity bought or sold does not vary much with the price.
It is evident that the deadweight loss increases proportionately to the elasticity of either supply or demand.
2. A demand curve with price elasticity of demand equal to 0.4 will be next inline to perfectly inelastic curves.
3. A demand curve that is unit elastic will have a slightly more deadweight loss than the curve with price elasticity of 0.4.
4. A demand curve with price elasticity of demand equal to 100 will have the highest deadweight loss since the quantity bought or sold will vary with the price of the product.
Add Answer to:
Please rank the follow curves as to how they would
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