ECO 1104 Lecture 8: Chapter 8.docx

• School: University of Ottawa
• Department: Economics
• Course: ECO 1104
• Professor: David Gray

Document Summary

Basic objective: given the tools of welfare economics dealt with in chapter 7 (i. e. consumer surplus, producer surplus, and total surplus), how are they affected by the imposition of a tax, difficult material to follow, whenever the government imposes a tax it will affect the market, this has allocated repercussions. Before after equilibria: suppose that a per unit excise tax is imposed on sellers, s shifts upward and to the left by the full amount of the tax, called t, new equilibrium p higher, new equilibrium q lower, figure 8. 2, note that tax revenue = t * new q, next step is to determine who wins and who loses, and by how much, before the tax, ts = cs + ps, in figure 8 3, cs = area a+b+c, in figure 8 3, ps = areas d+e+f, deadweight loss of the tax is the overall loss of welfare, after the tax, ts= cs + ps + tax revenue.