Final answer:
The size of deadweight loss (DWL) depends on the price elasticities of supply and demand. It increases with higher price elasticities.
Step-by-step explanation:
The size of deadweight loss (DWL) depends on the price elasticities of supply and demand. Price elasticity measures the responsiveness of quantity demanded or supplied to changes in price. The higher the price elasticities, the larger the deadweight loss.
For example, if both demand and supply are relatively elastic (price elasticities greater than 1), a small change in price will lead to a large change in quantity, resulting in a larger deadweight loss. On the other hand, if demand and supply are relatively inelastic (price elasticities less than 1), a change in price will have a smaller effect on quantity and a smaller deadweight loss.
Therefore, the correct answer is a) It increases with higher price elasticities.