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d. larger when demand is more inelastic, other things being the same. 19. The excess burden or dead weight loss resulting from a specific tax will be minimized if: a. the tax is imposed only on goods consumed by wealthy people. b. the tax is imposed on goods for which demand is inelastic, such as drugs. The deadweight loss for graph 1 and 2 are 1/2*60*250 or 7500 and 1/2*60*100 or 3000 respectively. To earn more revenue, the government must tax bus passes, as less elastic demand generates more tax revenue and less deadweight loss. Less elastic demand means there will be a lesser change in the demand for a good with the change in its price.

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The more elastic the supply the larger the deadweight loss from a tax all else equal.

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The demand calculated from here is then carried over to the next graph (Demand-Supply graph for an individual firm) where Demand is equal to the Marginal Revenue or Average Revenue or Price of sugar. The demand, as we see from second graph is perfectly elastic and any increase in price by the firm would result in loss of market share for that firm.

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Solution for Complete the following table with the tax revenue collected and deadweight loss caused by each of the tax proposals. Tax Revenue Deadweight Loss If…

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True or False: The more inelastic are demand and supply, the greater is the deadweight loss of a tax false True or False: If a tax did not induce buyers or sellers to change their behavior, it would not cause a deadweight loss