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 small, because the quantity bought or sold does not vary much with the price. With perfect inelasticity, there is no deadweight loss. However, deadweight loss increases proportionately to the elastic.

Using the below graphs, discuss the impact of tax on consumer, supplier and government considering the level of elasticity and also discuss who bears the more tax burden from any two of these four market changes.

See attached graph

1. Inelastic Demand 2. Elastic Demand Pb Pm 2m P 3. Elastic Supply 4. Inelastic Supply PD