ECON 201 Lecture Notes - Lecture 8: Sales Tax, Deadweight Loss, Economic Surplus

• School: University of Calgary
• Department: Economics
• Course: ECON 201
• Professor: A L L

Document Summary

Qo at equil is efficienct. Loss of total surplus due to tax measure of inefficiency called. Dead weight loss of the tax . As tax size increases the deadweight loss becomes bigger and bigger. Curve going up and outward like half a u. T1 and t2 on x to show dwl1 and dwl2. Tax revenue (tax per unit) T + u + x. Laffer curve: draw a graph, tax rev $ on y and tax size on x. Square rule: if tax size doubles, then dwl is 4x as big on the final. If tax size triples, then dwl is 9x as big. If tax size quadruples, then dwl is 16x as big. If tax size is half as big, then dwl is of what it was. Draw vertical demand curve with upward supply curve. With tax, seller will still accept any price so ps is a little lower than equik. Pb = p* at equil.