Question

Deadweight Loss from practice variation is smaller when the demand is more elastic.

T or F

Answer 1

In case of inelastic demand, with the increase in tax, tax revenue paid by consumers will be greater and with inelastic supply, with the increase in tax, tax revenue paid by sellers will be greater and vice-versa.

Incidence of tax means how much proportion of tax falls on buyers or on sellers and it depends on the relative elasticity of demand and supply.

Irrespective of on whom tax is imposed, tax burden will be shared by both sellers and buyers.

The burden of tax falls more on the inelastic side, so if demand is relatively inelastic, then burden of tax falls more on buyers while burden of tax will be less on the sellers and vice-versa.

The DWL will be higher in case of elastic demand or supply curve and the DWL will be lower in case of inelastic demand or supply curve.

Hence the given statement is false.

Hence option F is the correct answer.