EC120 Chapter Notes - Chapter 8: Deadweight Loss, Tax Rate, Dwls
30
EC120 Full Course Notes
Verified Note
30 documents
Document Summary
Chapter 8: application the costs of taxation. Review from chapter 6: recall that a tax: Drives a wedge between the price buyers pay (pb) and the price sellers receive (ps) Raises the price buyers pay and lowers the price sellers receive. Reduces the quantity bought and sold: the effects are the same whether the tax is imposed on buyers or sellers, so we do not make this distinction in this chapter. Next: apply welfare economics to measure the gains and losses from a tax, determine consumer surplus (cs), producer surplus (ps), tax revenue, and total surplus with and without the tax. Tax revenue can fund bene cial services so we include it in total surplus. Because of the tax, the units between qt and qe are not sold. The value of these units to buyers is greater than the cost of producing them; the tax prevents some mutually bene cial trades.
