How consumers and producers respond to changes in price significantly influences the deadweight loss of taxation. When demand or supply is inelastic, deadweight loss tends to be higher. In these cases, consumers and producers may find it challenging to adjust their behavior in response to tax-induc...
Tax Incidence | Definition, Formula & Calculation6:01 Deadweight Welfare Loss & Marginal Diagrams Ch 4.Elasticity of Markets in... Ch 5.Microeconomics & Consumer... Ch 6.Production & Costs in Economic... Ch 7.Firm Behavior & Monopoly in... ...
then the deadweight loss of taxation is smaller, because the quantity bought or sold varies less with price. With perfect inelasticity, there is no deadweight loss. However, deadweight loss increases proportionately to the elasticity of either supply or demand....