Figure 8-16

question 104

Multiple Choice

Figure 8-16
-Refer to Figure 8-16. Panel (a) and Panel (b) each illustrate a $2 tax placed on a market. In comparison to Panel (a) , Panel (b) illustrates which of the following statements?

• A)When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic.
• B)When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic.
• C)When supply is relatively inelastic, the deadweight loss of a tax is smaller than when supply is relatively elastic.
• D)When supply is relatively elastic, the deadweight loss of a tax is larger than when supply is relatively inelastic.

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Definitions:

Natural Rate

The level of economic activity at which there is no cyclical unemployment; often refers to the natural rate of unemployment where the labor market is in equilibrium.

Socially Optimal

A state of allocation of resources that achieves the best possible outcomes for society as a whole, considering both efficiency and equity.

Short-Run Aggregate-Supply

The total supply of goods and services that firms in an economy plan on selling during a specific time period when some resources (e.g., wages and resource prices) are fixed.

Trade-Off

A scenario where one sacrifices a certain attribute or characteristic to gain another.