ECO 120 Lecture Notes - Lecture 18: Laffer Curve, Deadweight Loss, Economic Surplus

• School: University of Maine
• Department: Economics
• Course: ECO 120
• Professor: toddgabe

Document Summary

Raises the price buyers pay and lowers the price sellers receive. Consumer surplus (cs), producer surplus (ps), tax revenue, and total surplus with and without the tax. Tax revenue can fund beneficial services, so we include it in total surplus. When supply is inelastic, the tax only reduces quantity a little, so the deadweight loss is small. The more elastic the supply, the greater the deadweight loss. If demand and supply are elastic, there"s a larger response to a tax in terms of reduced quantity. If demand and supply is inelastic, there"s a smaller response to a tax in terms of reduced quantity.