Chapter 8 Cost of Tax

Chapter 8 Cost of Tax - Chapter 8; Application: The Cost of...

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Chapter 8; Application: The Cost of Taxation A tax on a good affects its price and the quantity sold and how the forces of supply and demand divide the burden of a tax between buyers and sellers Tax raises the price buyers pay and lowers the price sellers receive The Deadweight Loss of Taxation The outcome is the same whether a tax on a good is levied on buyers or sellers of a good Tax on buyers = demand curve shifts downward by the size of tax Tax on sellers = supply curve shifts upward by amount Elasticities of supply and demand determine how the tax burden is distributed between producers and consumers How a Tax Affects Market Participants The benefit received by buyers in a market is measured by consumer surplus The benefit received by sellers in a market is measured by producer surplus Government receives the total tax revenue: TxQ The government’s tax revenue is represented by the rectangle between supple and demand curve
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Chapter 8 Cost of Tax - Chapter 8; Application: The Cost of...

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