Under which condition does deadweight loss reach its maximum?

Show Answers

When supply responds significantly to price changes, but demand does not change at allWhen demand changes greatly with price, but demand is also completely unresponsiveWhen both supply and demand show little responsiveness to price variationsWhen supply and demand both react strongly to price fluctuations

Explanation

Deadweight loss is largest when both supply and demand are highly responsive to price changes, meaning both are relatively elastic. In this scenario, taxes or distortions cause greater reductions in quantity traded, increasing inefficiency.