Suppose the demand curve and the supply curve in a market are both linear, and suppose the price elasticity of supply is 0.5 . Will the deadweight loss from a $3 tax per unit be larger if the price elasticity of demand is 0.3 or if the price elasticity of demand is 0.7?
The deadweight loss will be greater if the price elasticity of demand is 0.7.
You might also like to view...
Consider the market for euros. Suppose the exchange rate is ________ its equilibrium. This means that the quantity of euros ________ is greater than the quantity of euros ________ and the exchange rate will ________
A) above; supplied; demanded; fall B) below; supplied; demanded; rise C) above; demanded; supplied; fall D) below; demanded; supplied; fall
Which of the following would shift the LM curve?
A) an increase in the tax rate B) an increase in the real money supply C) a reduction in business confidence D) All of these.
Refer to the above figure. The highest price that consumers would be willing to pay for quantity Q2 is
A) P2. B) P0. C) P1. D) cannot be determined from the diagram.
An inflationary output gap is defined to be when the current level of output is:
A. below full employment GDP. B. above full employment GDP. C. equivalent to full employment GDP. D. high enough to cause an unexpected amount of inflation.