When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic.
What is elastic?
- Elastic demand is demand in which the quantity demanded varies greatly with changes in price.
- Inelastic demand is demand for which the change in quantity demanded is small due to changes in price.
- Resilient commodities include luxury goods and certain foods and beverages, as price changes affect demand.
- Inelastic products may include items such as tobacco and prescription drugs.
- This is because demand often stays the same when prices change.
- Elasticity is an important economic indicator, especially for sellers of goods and services.
- Because we know how much a buyer will consume a product or service when the price changes.
- If the product is elastic, the quantity demanded will change as soon as the price changes.
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