If either supply or demand is relatively inelastic there is less reduction in equilibrium quantity and so there is less deadweight loss. Deadweight loss is a real economic cost of taxation. If we have to have taxes, all else being equal, we would like deadweight loss to be kept to a minimum.

    When demand is perfectly inelastic the entire tax is passed along to consumers, suppliers bear no burden at all. All of the lost consumers' surplus is captured in the form of tax revenue, so there is no deadweight loss. This is due to the perfectly inelastic demand, which means that there is no reduction in equilibrium quantity as a result of the tax being fully passed along in higher prices.

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