Deadweight Loss Question?
December 14th, 2008 — 10:38 am
Sunny asked:
Consider four markets for luxury yachts, Markets A, B, C, and D. The demand for yachts in Market A is perfectly elastic. In Market B the price elasticity of demand, as an absolute value, is 3. In Market C the price elasticity of demand, as an absolute value, is 0.25. Finally, the demand for yachts in Market D is perfectly inelastic.
(The elasticity of supply in all four markets is identical across every level of quantity).
Consider four markets for luxury yachts, Markets A, B, C, and D. The demand for yachts in Market A is perfectly elastic. In Market B the price elasticity of demand, as an absolute value, is 3. In Market C the price elasticity of demand, as an absolute value, is 0.25. Finally, the demand for yachts in Market D is perfectly inelastic.
(The elasticity of supply in all four markets is identical across every level of quantity).
If the government imposes the same size tax on all of these markets, which of the following statements will be true?
A. The deadweight loss in Market A will be the smallest
B. The deadweight loss in Market B will be the smallest.
C. The deadweight loss in Market C will be the smallest.
D. The deadweight loss in Market D will be the smallest.
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