Question

suppose the government is studying the potential impact of a tax in various markets. the supply and demand curves in those markets are depicted on the single graph above. refer to select ing questions: 1. the most elastic supply d, s 2. the deadweight loss wd and demand curves are select 3. the deadweight loss would be the largest in the market where the supply and demand curves are select 4. the deadweight loss in the market with supply s and demand d would be

Explanation:

Step1: Recall elasticity of supply

The flatter the supply - curve, the more elastic the supply. Among $S'$ and $S''$, $S'$ is flatter, so the most elastic supply is $S'$.

Step2: Recall dead - weight loss concept

Dead - weight loss is larger when supply and demand are more elastic. Elastic demand is flatter and elastic supply is flatter. The combination of $D'$ (flatter demand) and $S'$ (flatter supply) will result in the largest dead - weight loss.

Step3: Analyze dead - weight loss for $S''$ and $D''$

When supply $S''$ and demand $D''$ are both inelastic (steeper curves), the dead - weight loss is smaller as the quantity change due to tax is small.

Answer:

1. $S'$
2. $D', S'$
3. $D', S'$
4. Small