Question

Suppose the City of Provo is considering adding a special sales tax on either yogurt or ice cream. Supply is essentially equivalent in both markets, but Demand for ice cream is less elastic. Assume that, prior to the tax, market price and quantity are equivalent in the two markets. If the same per-unit tax is imposed on both markets, more revenue would be raised by the tax on ______ and more deadweight loss would occur in the market for ______.

Answer 1

The right response is "Ice cream; yogurt".

Step-by-step explanation:

• While the production for ice cream has become less stretchy, this same profitability from those throughout the market besides ice cream would be higher than for yogurt.
• Dead losing weight seems to be lower when the demand has become less flexible.

As a result, extra deadweight loss global community occurs throughout the yogurt industry or real economy.