Question

Why do economists prefer when the government introduces taxes in markets where supply and demand are more inelastic than in markets where they are more elastic?

Answer 1

The economists prefer the government to introduce taxes in the market where supply and demand are more inelastic than in markets where they are more elastic because a market with inelastic demand and supply would generate more tax revenue and less deadweight loss. As the quantity exchanged would be less responsive to the change in price due to the tax, it generates higher revenue and as the quantity does not decrease by much, the deadweight loss is lower compared to the market with elastic demand and supply where the quantity would decrease by a greater amount and so it would generate less revenue and higher deadweight loss.