True or False: All else constant, a tax in a market where either supply or demand is less elastic will cause less deadweight loss than in a market where demand and/ and supply is more elastic (less inelastic).

True

A tax is the amount which neither belongs to the consumer nor the producer. It belongs to the government. So with a tax, a gap between the amount that the consumer is paying for a particular good or service and the amount which the producer is receiving is formed.

When the demand curve is less elastic, a change in price would relatively make a smaller change in quantity demanded, that is, an increase in price would lead to a relatively less decrease in quantity demanded and vice-versa. Similarly, when the supply curve is less elastic, an increase in price would lead to a relatively less increase in quantity supplied and vice-versa. A less elastic demand would induce the burden of tax more on the consumers in the form of higher prices of commodities whereas a less elastic supply would induce more burden of tax on the producers.

All else constant, a dead weight loss will be more when the change in quantity is more. This is in case of a more elastic demand or supply curve.

Thus, the above statement is true.