Answer to Question #298263 in Microeconomics for garg

Question

what role does the elasticity plays in determining dead-weight-loss of tax?

Answer 1

Dead weight Loss is the fall in total surplus that results from a market distortion, such as a tax. When demand is relatively inelastic, the dead weight loss is small while when the demand is relatively elastic, the dead weight loss is large. As taxes increase, the dead weight loss from the tax increases.