Taxing Goods with Very Inelastic Demand Generates Less Deadweight Loss

question 39

Multiple Choice

Taxing goods with very inelastic demand generates less deadweight loss than taxing goods with very elastic demand because

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

---

Definitions:

Bond

A fixed income instrument that represents a loan made by an investor to a borrower, typically corporate or governmental.

Sell

The act of giving or handing over something in exchange for money or other compensation.

Premium

An amount paid regularly to insure something or to cover the cost of a policy, also used to describe the amount paid over the nominal value of something.

Bonds

Long-term debt securities issued by corporations and government entities that pay interest to the holder.