Consider a competitive market, that has recently had an ad valorem sales tax imposed. Show this on a diagram. What is the impact on the market equilibrium? If the demand curve becomes more inelastic, which side of the market suffers more?

An ad valorem sales tax is a percentage tax on the market price of good, normally paid for by the seller. This tax will pull the supply curve up towards the top left corner of a supply and demand curve, with the bottom of the supply curved "pinned down". The equilibrium quantity will fall but the equilibrium price will rise. A strong student will have highlighted the deadweight loss and the new equilibrium points clearly on the diagram.
Price elasticity of demand is a measure of how much demand moves with a proportional change in price. The more price inelastic the demand curve is, the less demand will move for a given change in price, shown by a steeper demand curve. Drawing a couple of more inelastic demand curves will also show that the more inelastic demand is, the more of the deadweight loss is borne by consumers as the price increases. The intuition behind this is that the price inelastic goods normally have fewer substitutes for consumers to use instead, so consumers have relatively less market power. Strong students can go on to discuss what would happen if the demand curve were actually more elastic, and what effects this discuss might have on policy.