ECON 20A Lecture 11: Market Equilibrium and Failure
Document Summary
Lecture 11- chapter 7, chapter 8 and chapter 10. 1. Ts = value to buyer - cost to seller. A tax on a good places a wedge between the price that buyers pay and the price that sellers receive. The quantity of the good sold falls. Areas above the price paid by consumer - cs. Areas below the price receive by seller - ts. The area between the price paid by consumer and the price receive by seller = tax revenue. Dwl depends on price of elasticity of demand or supply. Elastic demand results in a higher dwl. Elastic supply results in a higher dwl. Are of the triangle = x base x height. Tax rate doubles => dwl is four times the original. Tax rate 3 times => dwl is 9 times the original. Laffer curve shows that tax revenue first rises and then falls. Buyers and sellers are not the only ones affected by the market.
