Question

A tax creates no deadweight loss only when either supply or demand is a. somewhat elastic. b. decreasing. c. perfectly inelastic. d. perfectly elastic. e. increasing.

Answer 1

The correct answer is letter "C": perfectly inelastic.

Step-by-step explanation:

We should understand first what deadweight loss and what product inelasticity is.

• Deadweight Loss is a term used in economics to explain the loss to society caused by inefficiencies in the economy. Markets are unstable in cases where supply and demand are out of equilibrium.

• When its price changes, the supply and demand for and the perfectly inelastic product or service are not drastically affected. Whether the price of an inelastic product goes up or down customer buying behavior remains the same.

Thus, if a tax does not represent any relevant loss to society it implies the demand and supply are perfectly inelastic.

Answer 2

Answer:C

Step-by-step explanation:

When it perfectly inelastic