Economics 2160A/B Lecture Notes - Lecture 3: Deadweight Loss, Indifference Curve, Demand Curve
25 Oct 2018
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Excess burden: the loss of welfare when we put a tax in place. Specifically, in excess of the tax revenue collected: at a market level/ societal level a "deadweight loss" triangle, area of triangle = 1/2(base)(height, tax u = 1/2(base)(height) Base = q1 - q0 (figure 14. 2: whatever is the factor increase (multiplicative) on the tax- excess burden goes up by the square of that factor. Income = expenditure on x + expenditure on y. Figure 15. 3: excess burden = equivalent variation - tax revenue, opportunity for pareto improvements. The excess burden of a subsidy: a subsidy is a negative tax, and like a tax, is associated with an excess burden, consumer surplus. Indifferent with or without the ex(cid:272)ess (cid:271)urden (cid:271)e(cid:272)ause the ex(cid:272)ess (cid:271)urden doesn"t (cid:271)enefit the consumer, but costs the government $ The excess burden of income taxation: worker surplus, area between the supply curve and the market wage rate.
