Ch 8 outline - Chapter 8 outline I The Deadweight Loss of...

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Chapter 8 outline: I. The Deadweight Loss of Taxation A. Remember that it does not matter who a tax is levied on; buyers and sellers will  likely share in the burden of the tax. B. If there is a tax on a product, the price that a buyer pays will be greater than the  price the seller receives.  Thus, there is a tax wedge between the two prices and  the quantity sold will be smaller if there was no tax. C. How a Tax Affects Market Participants
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1. We can measure the effects of a tax on consumers by examining the  change in consumer surplus.  Similarly, we can measure the effects of  the tax on producers by looking at the change in producer surplus. 2. However, there is a third party that is affected by the tax—the  government, which gets total tax revenue of T × Q.  If the tax revenue is  used to provide goods and services to the public, then the benefit from  the tax revenue must not be ignored. 3. Welfare Before a Tax a. Consumer surplus is equal to: A + B + C. b. Producer surplus is equal to: D + E + F. c. Total surplus is equal to: A + B + C + D + E + F. 4.
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This note was uploaded on 08/31/2009 for the course EC 350 taught by Professor Sekelj during the Spring '08 term at Clarkson University .

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Ch 8 outline - Chapter 8 outline I The Deadweight Loss of...

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