Taxing Goods with Very Elastic Supply Generates More Deadweight Loss

question 42

Multiple Choice

Taxing goods with very elastic supply generates more deadweight loss than taxing goods with very inelastic supply because

• A) the amount of the tax is larger.
• B) the change in producer behavior is greater.
• C) producers have to pay these taxes out of pocket.
• D) the change in producer behavior is smaller.
• E) the government does not bother collecting the revenue.

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Definitions:

Accrual System

An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.

Revenue

The complete sum of earnings derived from selling goods or offering services that are central to a company's core business.

Net Sales

The total revenue from sales less returns, allowances, and discounts.

Cost of Goods Sold

The straightforward costs related to the production of goods a company distributes, encompassing materials and labor expenses.