Answer
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If we consider only a
single market ,the efficiency loss of a tax on the sales of snack
food will be zero when the
supply of snack food is perfectly inelastic.
Reasons are given below
:
meaning of efficiency of
loss of a tax ,
- It also known as deadweight loss of tax
- In economics, a deadweight loss (also known as excess burden or
allocative inefficiency) is a loss of economic efficiency that can
occur when equilibrium for a good or service is not Pareto optimal
(resource allocation where it is impossible to make any one
individual better off without making at least one individual worse
off).
- Causes of deadweight loss can include actions that prevent the
market from achieving an equilibrium clearing condition (where
supply and demand are equal) and include taxes or subsidies and
binding price ceilings or floors (including minimum wages).
- Deadweight loss can generally be referenced as a loss of
surplus to either the consumer, producer, or both.
- A tax cause a deadweight loss
because itcauses buyers and sellers to change
their behavior. Buyers tend to consume less when the tax raises the
price.
- When the tax lowers the price received by sellers, they in turn
produce less. As a result, the overall size of the market decreases
below the optimum equilibrium.
meaning of perfectly inelastic supply ,
- Perfectly inelastic demand or supply is an
economic condition in which a change in the price of a product or a
service has no impact on the quantity demanded or supplied because
the elasticity of demand or supply is equal to
zero.
thus , in a single market , efficiency loss of a tax on
sales of snack food will be zero when the supply of snack food is perfectly
inelastic, due to following
reason :
How Deadweight Loss Varies with Elasticity is as follows
- Monopoly is a market structure characterized
by a single seller, selling a unique product in the
market. In a monopoly market, the
seller faces no competition, as he is the sole seller of goods with
no close substitute. ... He enjoys the power of setting the price
for his goods.
- The amount of the deadweight loss varies with both demand
elasticity and supply elasticity.
- When either demand or supply is inelastic, then the deadweight
loss of taxation is smaller, because the quantity bought or sold
varies less with price.
- With perfect inelasticity, there is no deadweight loss. Because
in Perfectly inelastic demand or supply is an
economic condition in which a change in the price of a product or a
service has no impact on the quantity demanded or supplied because
the elasticity of demand or supply is equal to
zero.
- However, deadweight loss increases proportionately to the
elasticity of either supply or demand.
Other options given in the question are in detalied view ,
- A perfectly elastic demandcurve is represented
by a straight horizontal line and shows that the market
demand for a product is directly tied to the
price. In fact, thedemand is infinite at a
specific price. Thus, a change in price would eliminate all
demand for the product
- An ad valorem tax is a tax whose amount is based on the value
of a transaction or of property. It is typically imposed at the
time of a transaction, as in the case of a sales tax or value-added
tax.
- A value-added tax
(VAT) is a consumption taxlevied
on products at every point of sale wherevalue has
been added, starting from raw materials and going
all the way to the final retail purchase. ... For
example, if a product costs $100 and there is a
15% VAT, the consumer pays $115 to the
merchant.
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