ECONOM 1014 Lecture Notes - Lecture 4: Deadweight Loss
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When will a tax create no deadweight loss: polar case. Either perfectly inelastic or perfectly elastic supply or demand. If supply is perfectly inelastic (vertical supply line) the seller pays the whole tax: no reduction in quantity traded, reduction in quantity traded is what creates deadweight loss. If a tax raises no revenue, it will produce no deadweight loss: false, a large enough tax can wipe out the market. No trade to make revenue is: in practice, sufficiently high taxes may cause the market to go underground".
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