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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 doesnt 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 governments 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 buyers price Producer Surplus o Area above the supply curve and below the sellers price...
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