Taxing a Good with Very Elastic Demand Generates More Deadweight

question 57

Multiple Choice

Taxing a good with very elastic demand generates more deadweight loss than taxing a good with very inelastic demand because

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

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Definitions:

Profits

The net income received by a company after deducting all expenses, taxes, and costs.

Unrealized Gain

Profit that has been made on paper from investments but has not yet been converted to cash by selling the asset.

Commercial Substance

A characteristic of a business transaction that leads to a change in the cash flows of the entity, indicating that the change has a significant economic effect.

Joint Venture

A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.