8. Application - The Cost of Taxation

Principles of Economics, 4th Edition (Student Edition)

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
February 28, 2008 8. APPLICATION: THE COST OF TAXATION 1. The Deadweight Loss of Taxation a. How a Tax Affects Market Participants i. Welfare without a Tax ii. Welfare with a Tax iii. Changes in Welfare b. Deadweight Losses and the Gains from Trade Draw the supply-and-demand curve for cookies. If the government imposes a tax on cookies, show that happens to the quantity sold, the price paid by buyers, and the pride paid by sellers. In your diagram, show the deadweight loss from the tax. Explain the meaning of the deadweight loss.
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 2. The Determinants of Deadweight Loss The demand for beer is more elastic than the demand for milk. Would a tax on beer or a tax on milk have larger deadweight loss? Why? 3. Deadweight Loss and Tax Revenue If the government doubles the tax on gasoline, can you be sure that revenue from the gasoline tax will rise? Can you be sure that the deadweight loss from the gasoline tax will rise? Explain....
View Full Document

This document was uploaded on 04/07/2008.

Ask a homework question - tutors are online