mankiw ch.8 - Ch. 8 Pg. 1 8 The Costs of Taxation Mankiw -...

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8 The Costs of Taxation Mankiw - ch. 8 Dr. Fred Aswani We saw earlier how taxes on goods & services can change the Taxes provide revenues to government & are usually paid by To see the welfare effect of taxes, we need to compare the revenue received by the government & the deadweight loss to Deadweight loss of taxation In a competitive market, a given tax surcharge added to the price of each unit of a particular good-e.g.gasoline tax, will T lower the price received by the seller T increase the price paid by the buyer This allows us to use supply & demand diagram to analyze the Ch. 8 Pg. 1
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effects of a tax on total surplus We see that the tax places a wedge between the gross price (P B= P D ) & net prices (sellers price) and the equilibrium quantity will fall as a result of the tax The government receives tax revenue of T x Q where T = amount of tax per unit Q = quantity sold This is a benefit to those on whom the government spends the
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This note was uploaded on 10/02/2011 for the course ECON 1B03 taught by Professor Hannahholmes during the Spring '08 term at McMaster University.

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mankiw ch.8 - Ch. 8 Pg. 1 8 The Costs of Taxation Mankiw -...

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