The total deadweight loss of a $3 tax on Santa Hats is $3000
b. The total deadweight loss of a $3 tax on Christmas lights is $1500
C. The deadweight loss for Santa hats and the deadweight loss for Christmas lights are different because the graph with the higher deadweight loss has a more D. Elastic demand curve
The reasoning for this choice is that elasticity affects the deadweight loss. If the demand curve is more elastic, consumers are more responsive to changes in price.
Therefore, a tax on a product with a more elastic demand curve is likely to result in a higher deadweight loss compared to a tax on a product with a less elastic demand curve.
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Ebenezer Scrooge has just been elected the new President of Christmasland. As his first action, he is thinking of introducing an excise (or commodity) tax on either Santa hats or Christmas lights. The demand and supply curves for both products are shown on the graphs. Use the graphs to answer the questions.
a. What would be the total deadweight loss of a $3 tax on Santa hats?
b. What would be the total deadweight loss of a $3 tax on Christmas lights?
The deadweight loss for Santa hats and the deadweight loss for Christmas lights are different because the graph with the higher deadweight loss has a more
A. elastic supply curve.
B. inelastic demand curve.
C. inelastic supply curve.
D. elastic demand curve.