ECON 101 Lecture Notes - Lecture 8: Deadweight Loss, Tax Wedge, Economic Surplus
19 Oct 2017
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Econ 101 lecture 8-principles of taxes: cut off for exam will probably be first few sections of chapter 9, read chapters 8 and 9 from textbook, problem set #3 due friday. Invisible hand theorem: markets will always result in social optimum that has nothing to do with one person"s willingness to pay or one person"s willingness to sell. Tax wedge is wedged between fundamental supply and demand curve: consumer surplus with taxes is now reduced by their shared burden of the tax (the gov revenue) and then also reduced by dead weight loss. Producer surplus with taxes is now also reduced by their shared burden of the tax (the gov revenue) and then also reduced by other half of dead weight loss. The change of total surplus with taxes, the tax distorted the market, would be the total dead weight loss.
