Final answer:
An increase in price due to a tax coupled with a more price elastic supply curve results in a smaller drop in equilibrium quantity because suppliers with a more elastic supply can adjust production easily without causing a large change in quantity.
Step-by-step explanation:
Considering a given increase in price due to a tax, if the supply curve is more price elastic, the effect would be a smaller drop in equilibrium quantity. This is because a more elastic supply curve means that suppliers are more responsive to changes in price.
Hence, they can adjust their production more easily without causing a large change in the quantity supplied at the new equilibrium.
Conversely, with a less elastic (or inelastic) supply, a tax increase would result in a larger drop in equilibrium quantity because suppliers cannot adjust production as easily, leading to a bigger difference between the pre-tax and post-tax equilibrium quantities.
If we compare this with demand elasticity, when demand is elastic, shifts in supply have a larger effect on equilibrium quantity than on price. For example, a tax that raises costs would lead to a larger reduction in the quantity sold rather than a significant rise in price.
On the other hand, if supply is inelastic, shifts in demand would have a larger effect on the equilibrium price rather than on quantity.