Figure 8-5 ​

question 81

Multiple Choice

Figure 8-5
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-Refer to Figure 8-5. Graph (a) and Graph (b) each illustrate a $4 tax placed on a market. In comparison to Graph (a) , Graph (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:

X-inefficiency

The difference between efficient behavior of businesses under competitive environments versus the inefficiency that arises in the absence of competition.

Competitive Firms

Companies that operate in markets where no single firm has the power to influence the price of goods and services significantly.

Monopolistic Firms

Companies that have significant control over the market for a particular good or service, allowing them to influence price and production levels.

Economic Inefficiency

A situation where resources are not used in the most productive way, often leading to waste or a loss of potential output.