Mankiw - Chapter_08 - 1 Mankiw, Principles of Economics...

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Unformatted text preview: 1 Mankiw, Principles of Economics Prepared by Moon Young BAEK Yonsei University, Economic Chapter 8 Application: The Costs of Taxation 8.1 Introduction z No one would deny that some level of taxation is necessary. z “Taxes are what we pay for civilized society” (Oliver Wendell Holmes, Jr.) z In Chapter 6, we learned: ¡ How a tax on good affects its price and quantity sold; ¡ How the forces of supply and demand divide the burden of a tax between buyers and sellers z In this chapter, we will learn: ¡ How taxes affect welfare (economic well-being of participants in a market) ¢ Both buyers and sellers are worse off when a good is taxed ¢ For a precise comparison, we need to compare the reduced welfare of buyers and sellers to the amount of revenue the government raises , using consumer and producer surplus . z Finally, the analysis in this chapter will show that the cost of taxes to buyers and sellers exceeds the revenue raised by the governments ....
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Mankiw - Chapter_08 - 1 Mankiw, Principles of Economics...

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