MicroChapter8 - Rikki Norton Microeconomics Chapter 8...

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Rikki Norton Microeconomics Chapter 8 Questions for Review (1, 3, 4, 5) 1. The greater the elasticities of demand and supply, then the greater the deadweight loss of a tax will be. Since elasticity measures the response of quantity to a change in price, higher elasticity means the tax induces a greater reduction in quantity, therefore a greater alteration to the market. 3. The deadweight loss will increase because of the loss of quantity. The tax revenue will increase because of the loss of consumer and producer surplus. 4. The deadweight loss of a tax rises more than tax revenue as the tax rises. Tax revenue, will increase initially as the tax rises, but as the tax rises further, revenue eventually declines. 5. When the sale of a good is taxed, both consumer surplus and producer surplus decline. The decline in consumer surplus and producer surplus exceeds the amount of government revenue that is raised, so society's total surplus declines. The tax distorts the incentives of both buyers and sellers, so resources are allocated inefficiently. Problems and Applications (2, 4, 5, 6, 8, 10)
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This note was uploaded on 03/14/2011 for the course POLSCI 1123 taught by Professor Thompson during the Spring '11 term at Oklahoma State.

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MicroChapter8 - Rikki Norton Microeconomics Chapter 8...

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