Deadweight loss is greatest when ?
Correct answer: D. both supply and demand are relatively elastic
- A. supply is elastic, and demand is perfectly inelastic
- B. demand is elastic, and demand is perfectly inelastic
- C. both supply and demand are relatively inelastic
- D. both supply and demand are relatively elastic
Explanation
Deadweight loss is larger when buyers and sellers respond strongly to a tax, because quantity traded falls more sharply. That occurs when both demand and supply are relatively elastic.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
About Microeconomics
Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
Practise Microeconomics
1,742 free Microeconomics MCQs from Economics, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Economics questions like this
Economics is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Microeconomics questions
If we consider the impact on both consumers and producers, then protection of the steel industry is ?
Ad valorem tariffs are collected as ?
Most tariffs have ?
Which of the following would likely cause the greatest deadweight loss ?
Refer to Exhibit 4. If a tax is placed on the product in this market tax revenue paid by the buyers is the area ?
Refer to Exhibit 4. If a tax is placed on the product in this market consumer surplus is the area ?