EC120 Lecture Notes - Lecture 8: Tax Rate, Deadweight Loss, Laffer Curve

• School: WLU
• Department: Economics
• Course: EC120
• Professor: Houman Mortazavi

Document Summary

Chapter 8 - the costs of taxation: without tax, the equilibrium price is pe, and quantity is qe, when the government imposes a tax of per unit. Total surplus: tax revenue is included in total surplus, because tax revenue can be used to provide services such as roads, education, etc. Deadweight loss: results from a market distortion, such as a tax fall in ts, value of the units c + e to buyers is greater than the cost of. Losses to buyers/sellers exceed the revenue raised by government producing them, so the tax has prevented some mutually beneficial trades: the goods/services with the smallest deadweight loss are taxed depends on elasticity of s & d. When tax is small, increasing it causes revenue to rise. When the tax is large, increasing it decreases revenue.