EC120 Lecture Notes - Lecture 10: Black Market, Tax Rate, Laffer Curve

• School: WLU
• Department: Economics
• Course: EC120
• Professor: Logan Mc Leod

Document Summary

Without tax, the equilibrium price is pe, and quantity. When the government imposes a tax of per unit is qe. Tax revenue is included in total surplus, because tax revenue can be used to provide services such as roads, education, etc. Cs = a + b + c cs = a. Ps = d + e + f ps = f. Ts = a + b + c + d + e + f a + b + d + f. Tax revenue after tax = b + d. Deadweight loss: ts falls by c + e. Results from a market distortion, such as a tax fall in. Losses to buyers/sellers exceed the revenue raised by government. Value of the units c + e to buyers is greater than the cost of 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.