Chapter 8 - Chapter 8 Application: The Costs of Taxation...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter Application: The Costs of Taxation 8
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
The Deadweight Loss of 22
Background image of page 2
The Deadweight Loss of 33
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Figure The effects of a tax 44 P r i c e Quantity 0 Demand Supply Price buyers pay Price without tax Price sellers receive Size of tax A tax on a good places a wedge between the price that buyers pay and the price that sellers receive. The quantity of the good sold falls. Q u a n ti t y w it h Quanti ty withou t tax
Background image of page 4
The Deadweight Loss of 55
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Figure Tax revenue 66 P r i c e Quantity 0 Demand Supply The tax revenue that the government collects equals T × Q, the size of the tax T times the quantity sold Q. Thus, tax revenue equals the area of the rectangle between the supply and demand curves Q u a n ti t y w it h Quanti ty withou t tax Size of tax (T) Quantity sold (Q) Tax revenue T ˣ Q Price buyers pay Price sellers receive
Background image of page 6
The Deadweight Loss of 77
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Figure How a tax affects welfare 88 P r i c e Quantity 0 Demand Supply A tax on a good reduces consumer surplus (by the area B + C) and producer surplus (by the area D + E). Because the fall in producer and consumer surplus exceeds tax revenue (area B + D), the tax is said to impose a deadweight loss (area C + E). A
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/29/2011 for the course ECON 211 taught by Professor Bass during the Winter '11 term at Grand Valley State University.

Page1 / 22

Chapter 8 - Chapter 8 Application: The Costs of Taxation...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online