ECON 2304 Lecture Notes - Lecture 12: Laffer Curve, Exponential Function, Black Market
19 Oct 2016
School
Department
Course
Professor
Document Summary
Chapter 8: application: the costs of taxation (day 2) Turns out it depends on the price elasticities of supply and demand. The price elasticity of demand (or supply) measures how much qd (or qs) changed when. Dwl and the elasticity of supply (same with demand) Inelastic it"s harder for firms to leave the market when the tax reduces ps. So, the tax only reduced q a little, small dwl. Small dwl the easier for firms to leave the market when the tax reduces ps. The greater q falls below the surplus-maximizing quantity, the greater dwl. Discussion question the government must raise tax revenue to pay for schools, police, etc. To do this, it can either tax groceries or meals at fancy restaurants. A bigger government provides more services, but requires higher taxes, which cause. The larger the dwl from taxation, the greater the argument for smaller government.
