ECO 1104 Lecture Notes - Lecture 11: Tax Wedge, Deadweight Loss, Tax Incidence

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whitemanatee506

17 Oct 2018

School

University of Ottawa

Department

Economics

Course

ECO 1104

Professor

Cristina Blanco-Perez

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ECO 1104 Lecture Notes - Lecture 2: Sunk Costs, Opportunity Cost

ECO 1104 Lecture Notes - Lecture 3: Opportunity Cost

ECO 1104 Lecture Notes - Lecture 11: Tax Wedge, Deadweight Loss, Tax Incidence

Document Summary

Taxes: producers or consumers have to pay an extra amount of money to the government. Discourage production and consumption of the good that is taxed. Raise government revenue through the fees paid by those who continue buying and selling the good. A tax will reduce consumption and provide a new source of public revenue. Effects of a tax paid by the seller. The tax revenue and deadweight loss from the tax on sellers can be calculated. The tax revenue generated is tr = tax*qpost-tax. Tax revenue is a transfer from consumers and producers to the government. Deadweight loss occurs from loss of quantity sold. A tax on sellers decreases supply (it"s not a real shift) A tax on sellers does not affect demand. The equilibrium price rises and quantity decreases. Taxes drives a wedge between the buyer"s price and the seller"s price. A tax on buyers does not affect the supply curve. A tax on buyers affects the demand curve.

Related Questions

Price (cents per brownie) The graph shows the demand curve and supply curve for chocolate brownies. S + tax A 20 cent tax is imposed on brownies sellers. The supply curve shifts (Up;Down) by 20 cents. Calculate the Tax burden for consumers and producers S + tax cents Tax burden on Consumers Tax burden on Producers cents Calculate the tax revenue and deadweight loss million The government's tax revenue is $ The deadweight loss is $ _ _million. Quantity (millions of brownies per day)

Consider the following market QD= 15-2P QS= 5P-2.5

a. Let the government impose a tax of 1.4 dollars per unit on the seller. Find the new equilibrium price paid by buyers P_B and the effective price received by sellers P_S.

b. Determine the quantity of the goods bought and sold.

c. Calculate the surpluses and the deadweight loss.

d. Calculate the tax revenue.

scarletwoodchuck307

Draw the demand and supply curve for cookies. If the government imposes a tax on cookies, show what happens to the price paid by the buyers, the price received by the sellers, and the number of cookies sold. In your diagram, show the deadweight loss from the tax. Explain the meaning of deadweight loss.