A Few Loose Ends on Ch.6 and
Ch7
When will a tax cause no deadweight loss ?
D
S
P
Q
Q
0
Q
1
D
P
buyer
P
seller
tax
When will a tax cause no deadweight loss ?
D
S
P
Q
Q
0
P
buyer
P
seller
tax
When S or D is perfectly
inelastic
Why?
No reduction in
quantity traded
•
True or false ?
•
If a tax raises no revenue it will produce no
deadweight loss
–
No tax revenue
D = 0
•
FALSE
–
A
large enough tax can wipe out a market (Q =0)
When will a tax cause no deadweight loss ?
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- Fall '08
- RYAN
- Microeconomics, Deadweight Loss, tax revenues, tax cause
