Question

The governor wants to levy a $1 excise tax on a product but wants to minimize the deadweight loss. The deadweight loss will be LEAST when the demand curve is _____ and the supply curve is _____.

Answer 1

D) inelastic, inelastic

Step-by-step explanation:

A price ceiling set below the equilibrium price will always cause an increase in the quantity demanded and a decrease in the quantity supplied, resulting in both a shortage and a deadweight loss.

When the demand and the supply curves are inelastic, their slope is greater, which reduces the potential loss. The deadweight loss is the area in between the supply and demand curve and left of the equilibrium price.