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Chapter 8 Notes

Chapter 8 Notes - Chapter 8 Notes The Costs of Taxation •...

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Unformatted text preview: Chapter 8 Notes: The Costs of Taxation • The gov enacts taxes to raise revenue • A tax raises the price buyers pay and lowers the price sellers receive The Deadweight Loss of Taxation • It doesn’t matter whether a tax is levied on buyers or sellers • When a tax is levied on buyers o Demand curve shifts downward by the size of the tax • When tax is levied on sellers o Supply curve shifts upward by size of the tax • Which curve shifts depends on whether the tax is levied on sellers or buyers • Tax places a wedge b/w the price buyers pay and the price sellers receive • Quantity sold falls below the level that would be sold w/o the tax • Tax on a good causes the size of the market for that good to shrink How A Tax Affects Market Participants • The benefit received by buyers o Consumer surplus • Benefit received by sellers o Producer surplus • Benefit of government o Tax revenue Provide services roads, police, public educations, help the needy o Used to measure the government’s benefits from the tax o Tax benefit the area of the rectangle b/w the supply and demand curves Welfare with a Tax • Consumer surplus o Area below the demand curve and above buyer’s price • Producer Surplus o Area above the supply curve and below the seller’s price...
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Chapter 8 Notes - Chapter 8 Notes The Costs of Taxation •...

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