EC120 Lecture Notes - Lecture 8: Deadweight Loss, Economic Surplus, Demand Curve
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EC120 Full Course Notes
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Document Summary
Taxes affect welfare and the economic well-being of participants in a market. The government enacts to raise revenue, and that revenue must come out of someone"s pocket. Both sellers and buyers are worse off when a good is taxed: tax raises the price buyers pay and lowers the price sellers receive. Governments impose taxes that affect economic well-being as well (providing goods/ services; roads, parks, police, etc. ) Governments impose taxes to achieve more efficient outcomes. (also called corrective taxes) Tax system can play an important role in achieving equity objectives. It doesn"t matter whether tax is put on buyers/sellers; demand curve shifts downwards by tax size for buyers and supply curve shifts upwards by tax size for sellers. Tax places a wedge b/w buyers and sellers; this wedge makes the quantity sold fall below the level that would be sold w/o a tax. (tax on causes the size of good to shrink)
