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:

Credit Terms

Credit terms are the conditions under which a seller extends credit to a buyer, specifying the repayment period, discount for early payment, and applicable interest charges.

Liberal Credit Terms

Credit conditions that are more favorable to the borrower, such as longer repayment periods or lower interest rates.

Operating Cycle

The duration between the acquisition of inventory by a business and the receipt of cash from accounts receivable, indicating how quickly a company turns its product into cash.