ECON 1000 Lecture Notes - Lecture 10: Deadweight Loss, Demand Curve

• School: Carleton University
• Department: Economics
• Course: ECON 1000
• Professor: Paul Haddow

Document Summary

When a tax is levied on buyers, the demand curve shifts downward by the size of the tax. When it is levied on sellers, the supply curve shifts upward by that amount. In either case, when the tax is enacted, the price paid by the buyers rises and the price received by sellers falls. In the end the tax create a wedge between the buyers price and the sellers price. Buyers and sellers share the same burden of the tax, regardless of how it is levied: (tax anything quantity falls) The determinants of the size of the deadweight loss. For linear supply and demand curves, the formulas for dwl is: dwl=1/2 t( q1-q2) Dwl triangles for different levels of taxes are similar triangles so when you double the base the height also doubles. When t is doubled, the area or dwl increases by 4 times, if tax triples, then dwl increases by factor of 9.