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Suppose an excise tax is imposed on Mexican chicken tortilla soup market.  Using two separate set of...

Suppose an excise tax is imposed on Mexican chicken tortilla soup market.  Using two separate set of graphs, show how the deadweight loss is related to (a) the elasticity of demand and (b) the elasticity of supply.

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Answer #1

The excise tax is imposed on the price of the good. Thus the steeper the demand curve the greater the consumers burden will be and the more inelastic the supply curve the greate the producers burden will be. This is given as follows. The tax causes a leftward shift of the supply curve.

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